Real Estate Matters | Hard Money Lending Doesn’t Have to be Hard

Sam Lee

A hard-money loan is simply a high-interest short term loan that is usually secured against a property. It is a way for investors or developers to raise funds without going to traditional mortgage lending institutions.

Traditional mortgage issuing institutions carry out an often slow and painful process of due diligence on the borrower and check indicators such as credit score or employment status to ensure that the borrower has the ability to pay back the loan.

Hard money lenders take a different approach of securing the loan against a real asset and effectively hedging against the possibility of a default from the borrower. Because the protection that the property offers, hard money loans can be issued much quicker than traditional mortgage loans.

Hard money loans are usually issued on a short-term basis of usually between 1 and 5 years and have much higher interest rates compared to traditional loans.

Investors will often use hard money loans to purchase an investment property quickly and subsequently refinance through a traditional mortgage institution at a lower interest rate to pay the private investor back. Of course, the key is to make sure that the returns from the investment covers all financing costs. 

Hard money is also sometimes used as a last resort by home owners in need of a big loan but who cannot qualify for traditional refinancing. This is obviously not the most responsible application of hard money lending, and in these situations, it’s in the borrower’s best interest to pay the loan back as soon as possible due to the higher interest rate.

As a responsible investor, you can borrow hard money to purchase investment properties as mentioned above, or you can become the hard money lender and look for passive high interest returns over the short term.

Sam Lee is a marketing manager and property consultant at JML Property.  JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

www.JMLProperty.com

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