Hard Money Land Loan
Hard Money Loan is basically a “Sub-prime Loan” that works on collateral based underwriting. It puts more emphasis on the lend able equity in your property rather than on your credit. You can say that it is more of an equity based loan.
Hard money land loans are available from hard money lenders if the borrower cannot get financing from anyone else. The disadvantage of hard money land loans is that they are costly; they are much more expensive than a bank loan, for example. The advantage is they may be available as a last resort when no one else is willing to take a risk on the loan applicant.
Typically, hard money loans are for people with bad credit, no credit, an impending foreclosure, or some other red flag that causes banks and other lending institutions to balk. Rather than take a risk on them, banks usually decline their applications. Hard money lenders, on the other hand, are more open to them, especially if they have equity in a home or property.
This type of financing tends to have different terms than traditional loans and will not generally be offered by standard commercial banks or other similar deposit lenders. Hard money loans, however, can be beneficial for commercial situations where the borrower has:
- bad credit
- an existing mortgage in default
- an ongoing bankruptcy
Land is necessary for any construction or real estate development. Most conventional lenders such as banks, savings and loan association and pension funds are not interested in giving such loans. Developers therefore approach loans specialists who are able to find investors to make these difficult loans.
Hard money land loan lenders are one such group of specialists who can find money for short-term land development loans. They usually offer loans for a smaller percentage, of value than conventional lenders. Additionally, their loan terms are usually worse than conventional lenders.
Typically hard money land loan lenders will only loan liquidation values of the land parcel. These lending sources have higher interest rates and shorter loan terms. Most hard money land loan lenders who make raw land loans place them with private money sources. They will make loan decisions based on asset value rather than the borrowers’ credentials. This makes these loans easier to get but harder to service.
Borrowers approaching hard money land loan lenders are required to follow strict guidelines set by the lenders. Some lenders will not finance a purchase of foreclosed properties or properties encumbered by liens or judgments. Borrowers typically use brokers, to navigate through the list of restrictions in order to find, the best hard money land loan lender. Hard money land loan lenders are frequently used, when the risk is higher, but there is adequate collateral to cover these higher risks.
Related posts:
