Hard Money loans are non institutional loans funded by private real estate investors, companies and funds - using their own money - secured by a first, second, or third Trust Deed against the subject property.
These types of loans are referred to by many different names, such as, private money, private equity, equity, equity only, equity-based, equity-driven, or asset based.
Equity-driven mortgage loans typically require 25-50% equity in the property and/or collateral in another piece of real estate, although some lenders will accept other assets such as stocks and bonds as collateral for the loan.
These types of loans also carry a heavier burden and interest rate for the borrower for the simple reason that they also pose higher risk for the lender and are often a temporary solution that opens doors for a more permanent financial solution or exit strategy.
Equity based loans offer an alternative to strict and narrow traditional bank (institutional, conventional) financing, thereby eliminating many of the usual qualifying, credit and income underwriting guidelines and delays of banks, mortgage companies or institutional lenders for traditional mortgage loans.
Equity lenders base their decisions on the unencumbered property value, its marketability, the borrower's exit strategy and his or her ability to repay the loan. They generally do NOT calculate debt ratios and usually do NOT take into account the borrower’s credit and income. Funding is very fast; sometimes within days of receipt of the application - a true advantage over traditional bank financing.
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