Entrepreneurs often look to the real estate market as a means of generating wealth. Purchasing property for commercial reasons could prove highly profitable. Unable to pay cash for the property and discovering mortgage lenders aren’t interested in facilitating a deal, entrepreneurs look towards hard money loans for financing. Hard money loan deals in Hillsboro, OR could prove incredibly helpful to those whose financial plans appear stalled.
How Does a Hard Money Loan Work?
A hard money loan provides a way for people to purchase property outside the traditional commercial mortgage spectrum. The borrower likely has credit troubles or falls below income requirements. Hard money loans don’t put tremendous emphasis on credit history or income levels. Instead, the lender focuses attention on the value of the property. So, the property’s collateral sways approval decisions.
Borrowers who are interested in financing a construction project, renovating and reselling a house, or engaging in some other commercial activity find this loan worthwhile. The goal involves completing a business project and receiving enough revenue to repay the loan in full and earn a decent profit.
Terms, Costs, and Fees Associated with Hard Money Loans
Hard money loans seem like mortgages, but the differences are significant. The most significant difference is the short-term duration of a hard money loan. Usually, the loan term only runs about 12 months or so. The term could be a little more or a little less. A one-year loan gives borrowers far less time to repay the debt that would be the case with a 30-year mortgage. Of course, the goals of hard money loan borrower and a traditional mortgage seeker are different.
The 12-month or so term employs a “balloon payment” system. A balloon payment means the borrower may pay nothing until the end of the term, or the borrower pays, possibly, just the interest per month until the term ends. Once the term ends, the borrower must pay the loan off in full. “In full” refers to all remaining interest, principle, and fees.
Interest rates and fees with a hard money loan come at substantially higher figures that are common with the typical home mortgage. Borrowers with poor credit and potentially risky business deals should accept the higher interest rates help mitigate the lender’s risks.
Be mindful that refinancing a hard money loan isn’t easy. Don’t automatically assume you could address any issues with repayment by procuring a new loan. Roadblocks may exist.
The Hard Money Loan “Down Payment”
Hard money loans come with their version of a down payment. The Loan-To-Value (LTV) ratio refers to the high monetary outlay made by the borrower mandated by the lender to approve the loan. The lender would probably require the applicant to put down upwards of 20% or more of the loan in cash. Doing so not only reduces the loan amount and gives the lender a cushion in case of foreclosure, the high down payment helps establish the borrower’s potential to repay.
Hard money loans come with a faster approval process and lesser requirements, but there are requirements borrowers must accept when seeking such a loan.
Can I Buy An Owner-Occupied Home With A Hard Money Loan?
“Owner-occupied” and “private individual sales” refer to someone purchasing a home in Hillsboro, OR for non-commercial use. He/she seeks a hard money loan to buy property when not qualified for mortgage approval. While it is possible to use a hard money loan to buy a “dream home,” these events are rare. Well over 90% of hard money loans go to commercial borrowers. Private home borrowers find hard money lenders must adhere to federal regulations that add complexities to approving the loans. Would-be borrowers can still inquire with lenders about their options.