Tips in Availing Hard Money Personal Loans
Personal loans wherein you avail of hard money is a type of lending transaction wherein actual cash is given to you or transferred to your preferred account. In this transaction, you are able to gain cash because you used your property as collateral. This type of transaction could be likened to pawning but instead of small valuable items, you are pawning your real estate. You will be receiving cash fast as soon as you prove your ownership of the said property. The loanable amount that you can avail is based on the value of your property. But instead of 100% loanable amount based the value of your property, lending companies cut it by at least 20%. There are companies whose LTV (Loan to Value) rate is from 65% to 80%. For example, the value of your property is appraised at $100,000. If the lending company that offers hard money personal loan has an LTV of 65%, then you would be able to avail of a loan up to $65,000.
This type of loan is often preferred by individuals who have a bad credit. This type of loan doesn't require any credit screening since you already have a collateral which comes in the form of your property.
Like the pawnshop, you have the option to renew your loan by paying the interest rate or have it seized after months of not paying for the principal or even just the interest. These companies that offer this type of loan will give their clients months before the completely seize the property. They do understand that a real estate is difficult to acquire and they can't just take it away after years of hardwork and mortgage payments.
Although availing hard money for personal loan is very easy, getting out of it is very difficult. One of the factors that those who are considering this type of loan is that this type of loan is unregulated. That means the government can't say anything or control this transaction. Although lending companies will be competing for clients and will likely offer competitive rates, their rates are still high for a lending company. Mortgage and other regulated loans could go as low as 3% and could get high as 9% depending on your credit score. But in this type of transaction, no credit scoring is required but the interest rate starts from 12% and will increase to 19%.
Since this is a real estate transaction, you should expect that you will be offered a large amount of cash for your property. This is actually very risky for the lending company since they will never know what you want to do with the money and might even run away from your loan without even paying for it. To compensate with the risk, the company would need some collateral for that loan and that collateral comes in a form of real estate. If you are not ready to let go of your property think twice of this type of personal loan.