Residential Hard Money Loans

Hard money loans are a popular way of financing where traditional lending companies are hesitant to step in. These loans are available for every type of customer in real estate financing. A high interest rate is charged on these loans which is higher than other conventional loans. Apart from a high interest rate, the loan to value of a property becomes much lower in this loan compared to other mortgage loans.

Hard Money Loan for Residential Property

These loans are provided by private lenders on the basis of the loan-to-value of a property. Traditional loans are granted on the criteria of credit scores, tax returns and income statements, but in residential loans, they are granted with the property as the collateral. Residential hard money lenders consider the equity of a property as the basis of underwriting a property. Residential hard money lenders specialize on either commercial or residential properties, but some of them deal in land estates and projects with a high equity. Hard money lenders underwrite loans by calculating the loan to value, based on current market price of a property.

Uses
Residential hard money loans are used as temporary bridge loans for mortgage refinance, acquisition or avoiding bankruptcy. Such a loan is preferred, instead of giving control of a property to financial partners or filing for bankruptcy. These loans are used by people who need financing for renovation of residential properties before renting or selling them. Hard money lenders prefer borrowers who need the loan for income-producing properties such as retail or shopping centers, industrial offices and buildings, hotels or motels, medical institutions and restaurants, etc.

Terms
Hard money loans are provided on the value of the real estate property which also acts as a collateral for the loan. They are provided on the loan to value (LTV) of a property which usually lies between 60-75 percent of the market value. Lending firms are known to offer terms in the range of 11-12 percent for first trust deeds and 12 percent for second trust deeds. They also provide 60 percent maximum LTV of improved properties and 40% maximum LTV on land. Housing loans for secondary occupied houses are easier to fund with the loan going up to 75 percent LTV. Properties on which a hard money loan has been secured, is valued at 30-50 percent equity of the market value of the property.

Eligibility
Most traditional lenders provide loans on the basis of credit reports, income statements and tax returns that act as the eligibility. Lenders usually fix loan amount, interest rates and other terms and conditions according to the eligibility of the borrower. However, residential hard money lenders provide loan on the basis of real estate value of properties. Eligibility is flexible with limited requirements and documentation kept to minimum. Lenders allow borrowers with less credit to avail primary residency loans around, 65 percent LTV, if they provide proof and sufficient equity.

Loan Realization of Residential Hard Money Loans

Property values are determined with the LTV considered on the current market price of the property. The amount is fixed at a price which the lender can realize when the property is sold. Lenders sell the property when the borrower defaults in loan payments, to realize the loan . A borrower is provided with a grace period of one to three months period before the property is sold.

These money loans are expensive with their high interest rates but they are useful to tide over emergencies. A good payment option can help a person reap maximum benefits from a hard money loan.