Are you planning to borrow some money, but you're not sure what your options are? Have you heard about hard money loans, and you're curious how their rates compare to other types of loans?
The average person in the US has over 90 thousand dollars in debt. That includes credit cards and different types of loans.
If you're looking at getting a loan, you need to know more about hard money lending rates. Here's more information to help you make a decision.
What Is a Hard Money Loan?
A hard money loan is a short-term loan secured by a hard asset, usually real estate. The term is typically a year or less but may extend for longer if the lender agrees.
Hard Money Lenders
Groups of private investors fund these loans instead of a bank or credit union. They base the amount they will lend on the real estate value.
Lenders at trinitymortgagefund.com specialize in providing hard money loans to borrowers interested in a real estate opportunity.
There's usually less paperwork involved in getting a hard money loan, so the money is available quickly. The lenders look at the asset and the creditworthiness of the borrower.
Hard Money Lending Rates
These loans are riskier for the hand money lender, so they charge more interest to the borrower. Rates vary but average between 11-13 percent. Rates can be much higher as well.
There are usually additional fees or points charged for borrowing the money and processing the loan. These points depend on the lender.
The points charged can be up to 5 percent of the loan. The underwriting cost to draw up the legal document is also a cost that the borrower will pay.
A lender will want a down payment of between 10-20 percent for residential real estate. Commercial deals are often double that amount.
How to Reduce Hard Money Rates
You can do a few things to get a better rate on your hard money loan. The simplest one is to increase your down payment on the asset purchase. If you have more money in the deal, there's less risk for the lenders.
You can consciously improve your credit score before you apply for a loan. Once you've paid off a hard money loan on time, your track record will improve your reputation.
You can also pay the closing costs upfront instead of adding them to the loan. That step may reduce the interest rate charged.
When a lender offers a hard money loan with no down payment required, read the terms carefully as the lender will reduce their risk in other ways.
If you need an extension or more time to pay the loan, there will be a fee. There may also be a fee charged for paying the loan off early as the lender will want to earn all of the interest they expect from the loan.
Select the Right Loan for You
Now that you know about hard money lending rates, you can make a better decision. You'll be happy you took the time to understand how they work.
If you enjoyed learning about hard money loans, we have more information on our blog. Check it out today!