The hard money loans are provided by the lenders against collaterals. These loans are a type of mortgage loans or other financial assistances that are provided for investments in the real estate or to make houses and so on. But at the same time, these loans are not provided by the traditional banks because the amount of risk that is related to these loans is very high. The hard money loans are secured by the quick sale value of the collateral.
The hard money loans are very popular in the United States of America. These types of loans are mainly developed for the real estate sector. The history of these loans goes back to 1950 when the concepts of providing financial assistance or loans were totally changed and US found new credit plans. But 1980s and 1990s were not a good time for these hard money loan lenders. They faced huge losses and from then onwards, these lenders try to prevent their losses through different ways. These initiatives of the lenders have changed the sector with all its norms and conditions.
The hard money loans are designed to meet the financial needs of the individuals who are denied by the traditional mortgage or loan companies and commercial banks. So providing loans to these people is very risky. To cover themselves against the potential risk, the hard money loan lenders have designed some rigid terms and conditions.
The primary factor considered for the approval of the hard money loans is the quick sale value of the collateral. This value denotes the amount that needs to be offered for the collateral if it is sold at that moment. In other words, the present value of the property is considered by the loan lenders. Once the value is confirmed, 60%-70% of the value is offered as loan.
Now, a borrower may need some more money to meet his or her financial need for which he or she is borrowing. For this purpose, an additional collateral or security has to be placed by the borrower that is known as cross collateral. The process where this form of additional security is involved is known as blanket mortgage. These forms of mortgages are designed mainly for the business sectors.
Last Updated on : 1st July 2013