The term “hard money lenders” can often be confusing to new borrowers. Basically, a borrower can either get “soft money” or “hard money.” Soft money is easy to get–it’s easy to qualify for and has flexible terms. Hard money is much more challenging to obtain because this money often comes from private investors, not a bank or typical lending institution; consequently, the terms are much stricter to protect the investment.

Short-term loans are available by hard money lenders based on real-estate as collateral. The amount of these loans depends on the real estate value. The ratio between the amount of the loan and the value of the real estate depends on many variables, including the kind of real estate and the lender. These loans tend to be high interest and are independent of bank standards.

The reason why these loans ask for high interest is because the lender is taking a high risk. The chances of default are high because the borrower does not have to prove a good credit history. These loans are often considered by borrowers because they can’t get financed by banks for reasons like poor credit.

Although real estate is the preferred form of collateral, other assets may also be considered. This cross collateralization may help with improving the LTV, the loan to value ratio, because the loan is not based on the total value of the property, but only on a percentage of it.

Hard money lenders may serve either a local or national market. They may work with a broker for a percentage. It’s also possible for a lender to work directly with a borrower. The fees for their services depend on many factors. For example, some may charge application fees while others may charge prepayment penalties.

The Hard Money Team can offer essential information on hard money lending. They can be contacted at 512-692-4195. Call them today for more information.