How Hard Money Loan Borrowers

If you want to buy property and are considering borrowing a hard money loan (otherwise called a HELOC), you are more protected than ever since consumer and federal laws have issued a slew of regulations in your favor. More so, consumer protection agency has just tightened its grip and sent out a survey to determine how to make the process even more secure.

What is a hard money loan?

Generally, borrowers who seek mortgages approach traditional lending intuitions such as banks and credit unions and are granted loans based on their FICO score and credit history. Those who are self-employed or who have spotty credit trustworthiness are almost certainly refused. Historically, and particular, banks are becoming more reluctant to lend to even legitimate investors. This is because housing prices have become exorbitant, fixing tends to become costly, and California government-based lenders have endured bad loans in recent years. For these reasons, shunned borrowers seek alternate sources, otherwise called unconventional funds (or lenders). One of these is the hard money or bridge lender who funds from his or her own pocket. more info

How does this work?

The lender looks at the value of the collateral rather than at your credit worthiness. If your property promises to be profitable, he risks handing you the necessary funds to fix or buy it. To offset the risk, the private, or hard money, lender – otherwise known as a ‘bridge lender’ – charges a hefty interest fee and huge prepayments (generally double the price of traditional loans). Historically, hard money lenders also provide low loan to value ratio (LTV) – namely disproportionately low value for your property; although.

2019 has been a tough year for Californian residents. Housing prices have spiraled way out of control and most forecasts predict that 2019 will raise these prices higher still – particularly since the Fed intends to raise interest rates. Large numbers of borrowers have tripped short of payment. Real estate reports such as Redfin, a residential real estate company that provides web-based real estate database and brokerage services, say that 2016 will see even more borrowers siphon large amounts of money to private lenders, unable to repay in full and lose property as a result. (The borrower’s money is not refunded).