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Everything About Hard Money Loan – Things You Need To Know When It Comes To It

One thing about hard money loan, or better known as private loan money, is the fact that this is a type of loan that can only be attained from sources that are specializing in the construction of the said loan. Moreover, it has been said as well that hard money loans consist of a first mortgage on a residence and this process lead to the creation of hard money residential loans. You should know by now that when it comes to the identification of hard money loans, there are several important factors to be considered.

One example of which is the first mortgage, which we have already stated earlier on in this article. Due to the fact that the credit history of the borrower will not matter as much as the amount of equity in the property, a first mortgage that has taken an effect will prevent any potential loss of the entire property if, for instance, there is another loan before the hard money loan. If you are wondering why the credit history of the borrower will not matter for hard money loan, well, that is due to the fact that the lender looks to the property for its security, not to mention that the lender is being paid dearly for the chance that they take by basing all the money on the value of the property alone.

Another thing that you should know regarding hard money loan is the fact that they are typically charging very high interest rates and high points as well. There are instances wherein if the property is secure enough, the high points will be rolled into the actual loan. The truth of the matter is that the loan is actually not paid in the normal principle plus interest, instead, they are more likely to be paid with interests only, with a balloon at the end of the specified loan period. This only means one thing and that is the fact that the borrower is paying interest on interest and since points are interest and since mortgages are calculated with the inclusion of points, this only goes to show how every payment the borrowers make is paying interest the interest alone hence, interest on interest.

Basically speaking, most of the hard money lenders out there are being keen and cautious with their decision and they want a careful appraisal of the property. If you are thinking about the possible reason why they are doing so, well, it is actually because of their desire to protect themselves from the possibility of borrowers not paying their dues back or being deceived by them. This is their way as well to ensuring that their interests are protected.

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