Homeowners who are struggling to make their mortgage payments need to explore every possible option to stave off foreclosure. One such option is a hard money loan. Hard money loans are a non-conventional way for homeowners who are behind on their mortgage to get caught up. Understand the ins and outs of a hard money loan to determine if it is the right choice for you.
What is a Hard Money Loan?
A hard money loan is a type of loan that lends money to borrowers who can offer real estate as collateral for the loan. Hard money loans are normally short term loans with terms that last from a few months to a few years. If you cannot pay the loan off, the lender has the ability to seize your home.
Since hard money loans deal with risky lending situations, lenders usually charge an upfront fee in addition to monthly interest. The upfront fee is equal to a percentage of the loan.
Can You Get a Hard Money Loan with Bad Credit?
You can get a hard money loan with bad credit. In fact, hard money lenders don't use credit scores as the deciding factor when issuing loans; instead, they use the value of the property that will serve as collateral.
How Does a Hard Money Loan Help Me Save my Home?
If you have already missed several mortgage payments, you are unlikely to find a conventional lender who is willing to lend to you. If you have a substantial amount of equity in your home, a hard money lender is another alternative.
The amount that hard money lenders are willing to lend varies, but they generally will not extend loans past the 60 percent loan to value point. This means that if you have a home worth $100,000 and only owe $30,000 on the home, a hard money lender may be willing to lend an additional $30,000. You would then owe $60,000 on a home that is worth $100,000.
With the $30,000, you can bring your mortgage payments up to date and save your home. Another possibility is to take the money, get caught up on your mortgage, and use the extra funds to perform upgrades or maintenance to your property so that you can sell it and find a residence that is more affordable.
A home that is in foreclosure is not a lost cause. If you have enough equity in your home, a hard money loan is a viable alternative to get your home out of foreclosure, buying you extra time to decide if it is best to try to hang onto the property or sell it.