Private Money used for loans that do not qualify for traditional loan programs.
Hard Equity loans are a popular options for borrowers who credit scores are below 500.
Hard Money Loans are for people with little or no credit at the time and little or no money. They carry high interest rates and heavy risk. But sometimes you just don't have a choice. It's better to pay those high rates than to lose your property.
A major down side to hard money loans is that they don't report to credit bureaus. Your timely payments won't show up on your credit report, and therefore you won't be building positive credit.
The term "Hard Money Loan" as it is referred to in real estate or lending world is a type of non-bankable loan. Usually this means a loan where the lender can approve the loan request based upon the value of the assets and the equity in the assets, side stepping much of the usual time consuming documentation and verification that a lender might require to lend the same amount of money under "Soft" terms.
Hard Money loans can be a last chance to obtain a loan when a traditional lender will not provide one. Hard money loans are usually at a much higher interest rate than a traditional loan.
All available resources should be considered before entering into a hard money loan. Hard money lenders usually do not have much, if any, leniency towards payment due dates and their terms are usually not very favorable. However, hard money lenders may be the best, or only, option for some situations. They will lend you money when no body else will.
With hard money loans it is typical to pay anywhere from 2-6 points (or 2-6% of the loan amount).
Generally used by real estate investors who are buying properties that they intend to renovation and either resell or rent out, hard money loans are a good option for borrowers with a unusual scenario, i.e. extremely low credit score, only looking to keep the property a short time, need purchase and rehab money in one loan, etc. Hard money loans need to be high risk and therefore high cost loans, with average interest rates in the range of 13% or 14%. Most are short term loans (6 months on average) and are structured so that the borrower is only making interest payments during the course of the loan, with the whole principle amount due at the end of term. Credit Scores as low as 550 (depending on the lender), this can be a good alternative for borrowers who need short term money, but don't fit "cookie cutter" financing. However before entering a Hard Money Loan, the borrower needs to have the entire purchase planned out, including (most importantly) an exit strategy for the loan.
Typically hard money loans are made at 50-70% of a property's value. Since hard money loans are asset based, hard money lenders generally tend to take a conservative approach on the valuation of a property.