Quote:
Originally Posted by Mccannable
For rehabs and investment properties. Higher rates for short term with lower fees. Works well for both parties. They are not used for(ideally) primary residences or un qualified high risk buyers.
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Those are basically bridge loans. They're used to get the cash now and then refi into a better loan or sell the property once the rehab/build is done.
Hard money loans are usually for owners who really can't qualify for anything else, not even a "D" paper loan. The loan is given on the value of the property with no other requirements. There are also hard money loans for investment properties with a slightly better interest rate.
For example, there could be HOA legal issues which prevent a homeowner from refinancing. The only choice would be a private investor willing to risk the money and a homeowner financially stable enough to pay more monthly to get cash now for whatever reason. I've also seen it where a homeowner doesn't want to or cannot provide an adequate paper trail for a convential loan. (This doesn't mean anything illegal, just monies have been earned in ways not quite acceptable to a bank. One case was a professional athlete in negotiations for his contract. If he'd waited for the signing, he would have lost his dream home. So, a short-term, hard-money loan was a solution.)
There are legitimate reasons for these loans but there are too many slime balls in the business taking advantage of high-equity homeowners who are unsophisticated.