Definition of a Hard Money Lender
A hard money lender is a person or institution that offers loans, usually for real estate, with low credit restrictions but high rates and fees. Hard money lenders are often considered borrowers of last resort for those who are facing foreclosures or needing loans under abnormal conditions. Due to the high prices associated with hard money lenders, they are generally not a borrower's first choice.
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Who Are Hard Money Lenders?
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Hard money lenders are generally private investors--individuals who use hard money loans to increase their wealth through high interest rates. Some financial institutions double as hard money lenders, and others offer services to connect borrowers with hard money lenders in their communities.
What Do Hard Money Lenders Use as Collateral?
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Most hard money loans are for real estate, and in almost every case, the property itself is used as collateral. In fact, since hard money loans are risky, most hard money lenders will personally inspect the property before lending, in case of future default.
How Are Hard Money Lenders Different From Normal Lenders?
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To secure a traditional loan, you generally need good credit, income and references; none of that is necessarily the case with a hard money loan. Hard money lenders deal with loans most financial institutions would refuse, so they look less at a borrower's credit and more at the potential return on investment. Since hard money lenders are usually individual investors, they are much less common than ordinary banks and lenders.
What Rates Do Hard Money Lenders Offer?
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Rates and fees on hard money loans are always significantly higher than traditional loan rates, which is why hard money lenders are the lenders of last resort. There is no one typical hard money loan rate, but borrowers can expect to pay double or even triple the interest a traditional lender would charge.
Why Would I Consider Borrowing From a Hard Money Lender?
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Hard money lenders service individuals who need a loan but can't secure financing through traditional channels. Typical customers of hard money lenders include homeowners who are facing foreclosure, borrowers with terrible credit, and investors who would rather borrow from an individual than a bank, in order to avoid standard loan rules or normal payment schedules.
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