Hard Money Loans for Home Purchase

In times of uncertain economic stability, it is increasingly difficult to secure loans from financial institutions that have the responsibility to their investors and customers to frugal security. One option that can be taken advantage of is a hard money loan for home purchase that can allow the borrower to receive funds based on the value of property in question. Hard money loans for home purchases often lead to higher interest rates than a standard residential or commercial property loan.

Hard money loans for home purchase are more expensive than traditional home mortgages at sub-prime rates. The interest rates for hard money loans are dependent on the real estate market and the availability of credit, rather than the bank interest rate from which the borrower is seeking the loan. Interest points on hard money loans are normally one to three times higher than traditional loans and only higher if the borrower is in danger of foreclosure and is in need of a quick sale of the property.

Most hard money loans for home purchases are made by private investors. Since the loan is secured based on the property value, the borrower’s credit score rarely factors into the status of whether the loan is approved or denied and has little affect on the interest rate.

Hard money loans for home purchases will never cover one hundred percent of the property value. The maximum loan to value ratio is seventy percent which adds security to the lender in the event of default on the part of the borrower and foreclosure ensues. Especially in turbulent economic times where the status of mortgages feels the burden of the market, it is in the best interest of the lenders to secure their financial extensions by funding in the first lien position so that they are the first creditors to receive payment in the unlikeliest of events.

When the loan to value ratio, or LTV, is too low to be sufficient to pay off the existing mortgage it is difficult for a lender to secure the first lien position. However, the lender will always require the first lien position on a hard money loan for home purchase. A solution that the lender offers the borrower to offset the low loan to value is to utilize a cross collateralization from another property if one is available. Cross collateralization decreases the risk to the lender while allowing the borrower to secure the desired loan they are seeking.

Hard money loans for home purchase is free of state and federal regulation laws, however some states place restrictions on interest rates that can make it flawed for lending firms. For those seeking rapid funding when it is beneficial to close immediately, the lack of regulation allows the commercial lending industry to offer an attractive option in their efficient responsiveness.

Not surprisingly, lenders will often refer loans to other institutions when their economic positions call for such action. Referrals can lead to increased loan points and prices with each new institution.