Hard money loan, or better known for the name private loan money is a kind of loan that comes from a source that is specializing in the structuring of the said loan. Not only that, there goes the fact as well that a hard money loan is a kind loan that consist of a first mortgage on a residence, leading to the creation of a hard money residential loans. Take note that there are quite a number of important factors that must be taken into account when determining a hard money loan.
It is safe to say that first mortgage, which we cited not too long ago, is a very good example of these identifying factors. 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. If you are wondering why the credit history of the borrower will not matter for hard money loan, well, that is due to the fact that the lender looks to the property for its security, not to mention that the lender is being paid dearly for the chance that they take by basing all the money on 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. You should know by now that if the property you have is secured enough, the high points will become a part of the actual loan you are getting from them. 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. What this mean is that the borrower, in effect, is paying interest on interest and since points are interest as well, and since the mortgage may have been calculated with the inclusion of points, the all the payments that borrowers will make are paying the interest only and thus, 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. If you are thinking about the possible reason why they are doing so, well, it is actually because of their desire to protect themselves from the possibility of borrowers not paying their dues back or being deceived by them. As private lenders, they have to make sure that their interests are protected as well.