Vital Information Regarding Hard Money Loan That You Should Know Of
If there is one thing about hard money loan that we want you to be aware of, that would be the fact that they are only attainable from sources that are specializing in the structuring of this kind of loan. Furthermore, we want you to know as well that this is a kind of loan that comprises of a first mortgage on a residence that leads to the creation of hard money residential loans. Always bear in mind that there are several important identifying factors that are involved in hard money loan.
For an instance, it is usually the first mortgage which we have stated above. Since the borrower’s credit will not matter as much as the equity in the property does, a first mortgage that is in effect will stop any potential loss of the property, most especially if the borrower has another loan before the hard money loan. We are sure that many of you are wondering about why the credit score of the borrower will not matter and what we can tell you about it is that it is because the lender looks to the property for security and also, they are being paid dearly for the chance they take by basing all the money they get from the value of the property alone.
The next thing that you have to be aware of regarding this matter at hand is the fact that another facet of a hard money loan has something to do with them usually charging very high interest rates and high points as well. There are instances wherein if the property is secure enough, the high points will be rolled into the actual loan. More often than not, the loan is not paid in the usual principle plus interest but more likely, they are being paid in interest only with a balloon at the end of the stated loan period. This only means one thing and that is the fact that the borrower is paying interest on interest and since points are interest and since mortgages are calculated with the inclusion of points, this only goes to show how every payment the borrowers make is paying interest the interest alone hence, interest on interest.
It is safe to say that all hard money lenders out there are looking for a legit and credible borrower thus, they see to it that a careful appraisal is done to their property. They are doing this because they want to protect themselves from the possibility of getting deceived by the borrower or from having to suffer from significant loss if they cannot pay them back. They have to protect their interest as well.