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What are Residential Hard Money Loans?

Luke Arthur
Luke Arthur

Residential hard money loans are a type of mortgage loan that some individuals turn to as an alternative to traditional financing. These loans are provided by hard money lenders, who could be individuals or businesses, that regularly loan money to home buyers. Residential hard money loans are generally regarded to be a last resort for individuals who cannot qualify for a traditional loan. These loans are typically easier to qualify for, and they have high interest rates associated with them. The terms of this type of loan are generally different from what an individual would get with a traditional mortgage.

Hard money lenders are often individuals who have excess money to lend. These lenders generally pick up where traditional mortgage lenders leave off. If an individual cannot qualify for a traditional mortgage, he or she might consider turning to a hard money lender.

Man mowing the grass
Man mowing the grass

Loans from a hard money lender are usually regarded as a last resort for potential home buyers. Most people would not consider getting this type of loan first because it comes with extremely high interest. In many cases, the interest that an individual would have to pay for a hard money loan is as much as three times more than a traditional mortgage rate. Residential hard money loans are so expensive because hard money lenders know that they can charge more since individuals usually do not have another source of money.

Hard money lenders are generally in the habit of dealing with individuals who have bad credit or high debt ratios. When a traditional bank is not willing to work with an individual, a hard money lender might still be willing to offer him or her a loan. Lenders know that this is a risky situation, and they charge more in interest in order to make up for it.

In most cases, residential hard money loans will have different terms than traditional mortgage loans. The loan to value ratio will be very low. In many cases, the lender may be willing to offer only 60% or 70% of the value of the property.

Another common feature in residential hard money loans is that they are generally very short. For example, the loan might only last one or two years. This means that borrowers are generally only using this type of loan as a short-term solution.

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