While we certainly take time to carefully explain the hard money mortgage process there always seems to be a bit of confusion for some who aren’t familiar with how hard money works. To that end, here are a few common myths that need to be addressed to more fully explain the hard money message.
Bad Credit, OK!
Actually, no. One of the more common misunderstandings of hard money is that a hard money lender will issue a loan to almost anyone, regardless of recent credit history. While a hard money lender does place great emphasis on the property when evaluating a hard money request, a decent credit history is a requirement. There is some flexibility regarding a specific credit score and sometimes borrowers will put more money in as a down payment to offset a lower score but bad credit and hard money loans don’t mix very well.
It’s The Property
And speaking of emphasis on the property, we do evaluate the potential project in greater detail compared to say simply buying a condo downtown in which to live. We want to see what the final product will be and will base our lending decision on the final outcome as well as the ability of the developer to complete the project as designed. We also ask for a down payment of at least 30% of the final value of the property.
Hard Money Loans Are Expensive
Hard money carries higher rates compared to a traditional mortgage yet just like any other loan program various degrees of risk are evaluated and with more risk rates will be a bit higher. Yes, there are hard money lenders who charge extremely high rates and fees but that’s why you should shop around to get your best deal. Hard money lenders set their own rates and are not tied to any specific index. Hard money loans are a facilitator and of relatively short term.
Hard Money Lenders Like to Foreclose
This may or may not be a myth and there certainly are unscrupulous characters in any field for that matter but lenders are in the business of making loans, not taking back property. That’s a bad business model and any lender who issues a loan with the intent to foreclose on the property won’t be in business for very long. Our loan terms are easy to manage with competitive rates and fees and our investors get paid interest as the project progresses. If a hard money lender is forced to foreclose on the property, the private investors lose money as well.
Hard Money Can Be Used For Most Anything
While private lenders can make a loan under any circumstances they wish and may or may not need collateral attached with the loan, we at Capstone concentrate on investor and non-owner occupied properties. Our loans are secured by real estate and after a borrower and project review. Call or email us today with your next project!