Hard Money Mortgage
Any mortgage loan given to a borrower in exchange for cash, as opposed to a mortgage given to finance a specific real estate purchase.
Often, a hard money mortgage takes the form of a second mortgage given to a private mortgage company in exchange for the cash needed to purchase an item of personal property or solve some personal financial crisis.
Borrowers, in these cases, would pledge the equity in their property as collateral for a hard money mortgage.
Key characteristics of hard money mortgages include:
Asset-Based:
Hard money loans are primarily asset-based, meaning the lender focuses more on the value of the property being used as collateral than the borrower’s creditworthiness. Lenders may lend a percentage of the property’s appraised value.
Short-Term:
Hard money mortgages are typically short-term loans, often with terms ranging from a few months to a few years. Borrowers typically use these loans as bridge financing while they work on improving their credit or property to secure a more traditional loan or to fund real estate investments.
Higher Interest Rates:
Hard money loans usually come with higher interest rates compared to conventional mortgages. The elevated interest rates compensate the lender for taking on higher risk.
Quick Approval:
Hard money lenders often provide a faster approval and funding process compared to traditional lenders. This can be advantageous for borrowers who need funds quickly for time-sensitive real estate deals.
Greater Flexibility:
Hard Money loans offer more flexibility in terms of loan approval criteria and property types. They may be used for various real estate purposes, including fix-and-flip projects or real estate investments.
It’s essential to carefully consider the terms and costs associated with hard money mortgages, as they can be more expensive and carry higher risks than conventional loans. Borrowers should have a clear repayment strategy in place to ensure they can meet the loan terms and avoid potential financial setbacks.
