Hard money loans are very important to a real estate investor. Real estate investors are provided with loans to supplement their investment deals. A hard money loan is a valuable tool an investor can quickly close on an undervalued property or fix up for a prospective buyer who shows interest.
Hard money loans are sometimes called bridge loans. They are most time short-term loans based on hard assets. A hard money lender usually will look at the asset and the creditworthiness of a borrower. Since the requirements and paperwork involved are not as cumbersome as a conventional loan, hard money loans take weeks to secure.
Hence, money lenders usually charge high-interest rates to compensate for the risks. A lender can reduce risks by; suggesting a borrower pay a down payment and choosing a borrower with a good personal credit score. Some fees are involved in finalizing hard money loans. These fees are known as closing costs; they are not the interest rate. Some of these fees include the origination fee/Points, underwriting fees, and many more.
Most lenders make it mandatory for borrowers to make a down payment of 10-20% on loans for residential properties and 30-40% in the case of a commercial property. Although, it is also true that some lenders don’t demand a down payment. The rule depends on the rule of the states, organization, or the lender.
That being said, pay careful attention to lenders who claim to offer hard money loans with zero down payments to all borrowers as there may be other costs associated with the loan. For instance, they may offer you a zero-down payment option but charge ridiculously high-interest rates and origination fees, impose absurd pre-penalty terms, or have unrealistic payment schedules.
To know more about hard money loan costs and interest rates, find all you need here.
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