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Hard Money Loan Structures

Every type of loan has a different type of structure. Structure meaning, who is paid what, how the loan will be paid off, the interest rates, who is involved and what is as stake. With any and every hard money loan real estate is always used as the collateral, this is one of the many factors that make it a hard money loan.

Almost all lenders who take part in hard money loans lend in the 1st-lien position. This means that in the event that the borrowers cannot pay off this loan in the designated time period, this lender is the first person to get paid off. It is very rare than any lender would lend at a lower position than 1st-lien as these borrowers are already marked as a high risk so the odds are clear that they may not be able to pay this loan back at all.

Hard money lenders structure their loans based on the percentage of the quick sale of their valued property. This is known as Loan-To-Value which usually hovers around 60%-70% of the property value. When the lender is trying to determine the value of the property, the
”price of today” is what is always referred to. This makes the process that much easier for the lender.

Be aware that with every different lender comes a different structure. This is the great part of hard money lending, any lender can charge or lend whatever they see fit. This is why hard money lending is generally a last resort for most people; they have no other choice but to accept the interest rates and collateral that the lender is expecting. If you are looking to take out a hard money loan, whether it be from a private lender or a commercial lender it is important that you know the basic structure outline in case you find yourself being taken advantage of more than the average hard money borrower.

With the variance in loan structures you can never be sure exactly what you are going to be charged but at least if you know the general information and outline you know what to expect and when you are being taken advantage of.

Before you sign off on any type of loan, including these, insure that you know what it is offering you.  Insure that you know what the value is to you as well.  Ask questions and get the answers that you need so that you can find yourself in a better place overall.  A hard money loan may be just what you need, but take the time to really understand it first.

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