The field of hard money loans can be complicated, but it doesn’t have to be. Overly complex terminology, and stacks of documents have made the subject difficult to confront and grasp for the average person. Here is a definition and a brief explanation of what hard money loans are about. We’ll try to make it as simple and relatable as possible, while providing examples so that the subject can be understood by anyone that can read, hopefully without having to have a specialized dictionary or another tab at hand for looking things up on google.
Hard Money Loan:
A hard money loan is a specific type of loan in which a borrower receives funds that are secured by a land or property.
Hard money loans are also known as “equity loan“, “trust deed investment loan“, “private loan“, “private investors loan“, and tend to have higher interest rates than conventional loans and are very rarely issued by banks. Because hard money loans are generally done by private investors, they can be carried out faster and can be done for those who may not qualify for a normal bank loan, such as those who have poor credit or don’t show a lot of income.
Do I Qualify for a Hard Money Loan?
Credit is not an important factor in whether one can get a hard money loan or not. The most important thing looked at is equity, which could be defined as the value of a property after subtracting the amount of any debts that are still owed. For instance you purchase a house worth $500,000 and make a $40,000 down payment. The remaining $460,000 would be the amount still owed, while the $40k would be the equity on the home. For a hard money loan, you are looking at equity needing to be at around 35% of the total property value. So in this example, you’d want to have paid off about $175,000 if you wanted to qualify for a hard money loan.