When it comes to securing funds for a real estate investment project, hard money loans are a popular choice. Unlike traditional bank loans, hard money loans are typically awarded based on the value of the property being financed rather than the borrower`s creditworthiness.
If you`re exploring the option of a hard money loan, it`s important to understand the terms that will be included in the loan contract. Here are some key components to look out for:
1. Loan Amount: The loan amount will be determined by the lender after assessing the value of the property. Typically, hard money loans cover up to 70% of the property`s value.
2. Interest Rate: Hard money loans often have higher interest rates than traditional bank loans. The interest rate may range from 10% to 15%, but can be higher in some cases.
3. Loan Term: Hard money loans are typically short-term loans with a duration of 12 months or less. However, some lenders may offer longer loan terms.
4. Repayment Terms: The repayment terms for hard money loans can vary, but typically require monthly interest-only payments with a balloon payment due at the end of the loan term.
5. Collateral: The property being financed will serve as collateral for the loan. In the event that the borrower defaults on the loan, the lender can seize the property to recover their investment.
6. Fees: In addition to interest, hard money loans may also have fees associated with them. These can include origination fees, prepayment penalties, and late fees.
It`s important to carefully review the terms of the hard money loan contract before signing. If you`re unsure about any aspect of the contract, it`s recommended to seek the guidance of a real estate attorney or financial advisor.
In summary, hard money loans can be a useful tool for real estate investors looking to finance a project quickly and without the restrictions of traditional bank loans. However, it`s crucial to understand the terms of the loan and ensure that it`s a viable financial option for your specific investment goals.