Hard Money Lenders, Can They Really Help?
Borrowing money to buy a house requires a lot of thinking over and assessing if you can manage the responsibility. Borrowing from “hard money lenders” appears to be a resource you will turn to out of pure desperation. The tag “hard” gives the lending part a frightening appeal hence, a clearer view of what “hard money” lenders are and when to resort to them will be quite useful.
Hard money lenders are private individuals or small local companies who extend loans, to a desperate borrower who fails to settle a regular loan from a regular bank. Of course, the lending involves a high rate of interest and accompanied by fees way beyond what is prescribed in conventional loans.
The private investors who extend such loans make sure that the collateral for these loans have more than enough value compared to the amount they will put to risk as loans. Hence if hard money loan does not get paid, the hard lender investor literally bought a property way below its true value. Any subsequent sale of the collateral property will make a killing in terms of profit.
The poor and desperate borrower on the other hand who fails to settle hard money borrowings, literally sold a high-priced property in exchange for a very low value, which is the hard money loaned. Failure to make payments on the loan still entitles the borrower to a 30-day leeway before it reaches 120 to 180 days into full delinquency status. After these periods, the private lender starts foreclosure proceedings on the property.
When Do We Resort to Hard Money Lenders ?
Resorting to hard money lenders should be done with other definite plans in mind other than transferring an unpaid debt to another form of unpaid debt. Funds loaned from hard money lenders should serve only as a lifeline, hence these funds should be resorted to only if:
1. You already have a buyer for your property awaiting finalization of sale conditions and payment. The money you borrowed from the hard money lender only serves as a lifeline to settle an existing loan that needs prior and immediate settlement. The instant your pending sale of the property finally pushes through, money borrowed from the hard money investor can now be paid off including the interests and fees due thereon.
2. You can develop the real estate property for minimum costs with a high probability of the rehabilitated property being purchased or rented out. This then will provide you additional source of funds to pay –off the hard money loaned.
3. You are a real estate investor needing funds to get a first hand deal on a prime property being auctioned off at a low price and which has a high probability of being sold at a good price. The money loaned from the hard lender can be paid off once the prime property is sold.
Due to the rigid terms involved in hard money lending an individual should resort to this form of money resource only if the money loaned has a high probability of generating repayment funds. Otherwise, the fund which is supposed to be an extension of your lifeline will only be the beginning of your end line.
Ciel S. Cantoria – Mainly a housewife, professionally a CPA and now a full-time Filipino writer.
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