Hard money loans are specialty loan products, only taken on by investors who are willing to invest in high risk loans. The loan to value ratios are low, the interest rates are higher, the points or fees are typically much larger than other mortgage loans, and these types of loans are often due and payable sooner.
The financing criteria for a hard money loan is often based exclusively on the value of the collateral which is the property being financed, and no or very little consideration is given to a borrower's credit. This means that even a person in foreclosure whose credit and credit score has severely declined can qualify for this type of loan if there is a sufficient amount of equity in their property that reduces the investor's risk.
The loan to value is 65 per cent or less. But, hard money lenders really prefer making loans on properties with a loan to value of 50 per cent or less. Interest rates on these loan will be substantially higher than other mortgage loans, often 12 per cent or even greater. Often they are interest only loans so that none of the payments apply to the principle.
In addition, a hard money loan will charge the borrower the maximum amount of points allowed under mortgage law regulations. So expect to pay at least six points or six percent of the loan amount to acquire this financing. These loans are often amortized over 30 years, but are due and payable within eighteen months to five years.