DEAR BENNY: What is a “hard money” loan? –Irene
DEAR IRENE: Technically, it is a loan that is given in exchange for money, rather than to assist a consumer in buying a house. The latter would be called a “purchase money” mortgage.
Hard-money lenders do not rely on the creditworthiness of the borrower. Instead, they look to the value of the property. The lender wants to make sure that if the borrower defaults, there will be sufficient equity in the property over and above the amount of the loan. Accordingly, you will not get a hard-money loan of 80 or 90 percent loan to value; typically, they will range from 50 to 70 percent loan to value.
Such loans are considered “loans of last resort.” If you are unable to get a conventional loan from a bank or mortgage broker, you may be forced to negotiate with a hard-money lender, who often are private individuals loaning money from their pension plans.