What Are Hard Money Loans and How Do They Work

If you’re asking how to choose a hard money loan lender, you’ll first have to understand the basics of a Los Angeles hard money loan. Basically, it’s a loan that is backed by putting down real estate as a form of collateral (security) on the loan. What differentiates these loans from a traditional bank loan? For starters, the repayment terms are typically shorter than bank loans. Most hard money lenders offer loan terms of about 12 months, in some instances with the option to extend for 2 to 5 years. 

How do you repay?

Your Los Angeles hard money loan is paid in monthly increments. The payments you make each month are towards interest rates, or interest and a small amount towards the principal amount of the loan. You make a balloon payment at the end of the term, to fulfill your loan agreement with the hard money lender. 

How much can you borrow?

Most Los Angeles hard money loan is offered by lenders for an amount of up to the amount of the property (real estate) in question. So, the security you’re putting down on the loan is the max value that you can take out when you apply for a loan with a hard money lender. As a borrower, your credit score is not going to affect your ability to borrow, this is one of the primary draws of hard money loans. Those with bad credit can utilize real estate as a form of security, and borrow money they need for the short term. 

What Are Hard Money Loans and How Do They Work 

If you have heard of horror stories revolving around hard money loans, this is because there are some predatory lenders out there that try to take advantage of borrowers. Knowing they don’t have a great credit score, many lenders try to hike up interest rates and implement unfair practices when lending money. In order to avoid this, you should

  • Shop around and compare lenders
  • Understand the terms of your loan
  • Only sign/agree to terms you can pay back as a borrower
  • Understand the balloon payment and how much you’re going to owe when your loan matures. 

Even if you don’t have stellar credit, you can get funds you need for a purchase or for emergency cash assistance. Before you choose a hard money lender, consider some of these factors to help you make an informed decision. … Read this