With the real estate market in a mess, it is an excellent time for the private money loan aka: the hard money loan. When people speak of a hard money lender, usually, they are referring to a person who has a large sum of money and is willing to lend the money to people as long as the loan is secured by real estate. The lender will not be as concerned with the borrowers ability to pay or his credit report for that matter, he is mostly concerned in lending a set amount of money according to the value of the property. The private money loan is designed to help people who are in a financial crisis of one sort or another.
There is no shortage of people who are in a financial crisis and need to borrow money today. There are thousands of people that are facing losing their homes to a short sale or bank foreclosure, due to the drop in real estate values and the economy, plus a few other factors. This has made an ideal climate for the hard money lender. This can be a good situation for both the lender and the borrower in the right instance.
The hard money loan will be secured by the property. The lender will make sure his money is secure in two ways, short a few creative twists. One way is that the lender will not even entertain lending more than 70% of the present value of the property. This insures that if the borrower defaults, he can sell the property for at least, if not more than the original loan amount. The next way is that he will insist on having a first position lien on the property to make sure he gets paid first on the sale of the property.
There may be a few variations of the first lien to secure the loan. The property may have a loan on it presently and the borrower may only want a small amount of money and not pay of the 1st lien holder. If this is the case the first thing is the loan to value ratio may drop to 60% so the lender gets his money in the case of default. The lender may opt to put a first position lien on a different property to secure the loan if the borrower has more property. Either way, the lender will make sure that in any case, he will get his money back on the private money loan.