Real estate investors may sometimes have a hard time raising funds for a given property. Typically, loans are not provided for a non-owner occupied property for individuals. Another reason is that there’s an existing mortgage on the property. In these cases, the borrower may have to resort to hard money loans for properties in Miami.
Not a Face Value Loan
A hard money loan is a different kind of loan. It’s almost purely asset-based. The main reason that a lender would approve this loan is due to the value of the property. If the borrower is not able to repay the loan, the lenders can sell the property at a profit. Traditional mortgage loans aim to provide borrowers with funds to buy a property and to earn from the loan repayment.
In addition, many mortgages do not allow pre-payments. The borrower has to strictly follow the repayment period. Hard money loans allow and urge early pre-payment. It’s important to note that the loan is usually backed by an individual or an investor, and not by a bank.
As a result, the loan has a higher interest rate than regular mortgages. Hard money loans usually have interest rates higher than 7.7% and typically can be up to 10%.
There are many advantages a hard money loan can provide to borrowers and lenders. The borrower only has to prove their ability to repay the loan. Another advantage is the relatively short time to process the loan. There are only a few documents required to apply for a loan.
For the lender, the loan may have a higher risk, but the interest rate compensates for that. Additionally, hard money loans are short-term loans. The loans themselves are approved based on the individual’s ability to pay.
Hard money loans are short-term loans that provide borrowers with the flexibility to invest in real property, with the property itself as a collateral. Although the interest rate is usually higher than regular mortgage rates, investors are willing to take on the loan because there are fewer requirements.