Hard money loan

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A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans, starting at 7.7%[1], because of the higher risk and shorter duration of the loan. Most hard money loans are used for projects lasting from a few months to a few years. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.[2]

Hard Money is a term that is used almost exclusively in the United States and Canada where these types of loans are most common. In commercial real estate, hard money developed as an alternative "last resort" for property owners seeking capital against the value of their holdings. The industry began in the late 1950s when the credit industry in the U.S. underwent drastic changes.[3]

From inception, the hard money field has always been formally unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money such that operations in several states, including Tennessee and Arkansas are virtually untenable for lending firms.[4]

See also

  • Asset-based loan — a similar type of commercial loan based on real estate, indicating the loan will be based upon a percentage of the properties appraised value, as the key criteria.
  • Private money — refers to lending money to a company or individual by a private individual or organization.
  • Bridge loan — a similar type of commercial loan based on real estate.
  • Non-conforming loan — a loan that fails to meet bank criteria for funding.

References

  1. ^ "Hard Money Loans: A Complete Guide". californiahardmoneydirect.net. Retrieved 21 April 2017.
  2. ^ BHUTTA, NEIL; SKIBA, PAIGE MARTA; TOBACMAN, JEREMY (March 2015). "Payday Loan Choices and Consequences". Journal of Money, Credit and Banking. 47 (2–3): 223–260. doi:10.1111/jmcb.12175.
  3. ^ "Evaluating the Consumer Lending Revolution". fdic.gov. FDIC Office of Inspector General. 17 September 2003. Retrieved 12 October 2015.
  4. ^ "Usury Law". dfi.wa.gov. Retrieved 12 October 2015.
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