What are typical terms for hard money loan?
Hard money loans are a type of alternative financing that is often used by investors to purchase and renovate distressed properties. They are typically faster and more flexible than traditional bank loans, but they also come with higher interest rates and fees. If you're considering a hard money loan, it's important to understand the typical terms that you can expect.
Here are some of the main terms that you should be aware of when it comes to hard money loans:
Interest rate: Hard money loans typically have higher interest rates than traditional bank loans. The interest rate will depend on a number of factors, including the lender, the borrower's creditworthiness, and the terms of the loan. Hard money loan interest rates can range from 8% to 18% or higher.
Repayment schedule: Hard money loans may have shorter repayment schedules than traditional bank loans. The repayment schedule will depend on the specific terms of the loan and the borrower's ability to repay the loan. Some hard money loans may be due in full within a year or less, while others may have longer repayment schedules of several years.
Fees: Hard money loans may also come with a variety of fees, including origination fees, closing costs, and inspection fees. These fees can add significantly to the overall cost of the loan, so it's important to understand what fees you may be responsible for paying.
Collateral: Some hard money loans may require collateral, such as a second mortgage or a lien on the property being purchased. This can provide additional security for the lender in the event that the borrower is unable to repay the loan.
Prepayment penalty: Some hard money loans may also come with a prepayment penalty, which means that the borrower will be required to pay a fee if they pay off the loan early. This can be an important consideration for borrowers who may be planning to refinance or sell the property before the loan is paid off.
Overall, the terms of a hard money loan will depend on the lender, the borrower's creditworthiness, and the specific terms of the loan. It's important to carefully review the terms of any hard money loan before agreeing to it.