Bridge Loans
A common type of hard money mortgage loan is the bridge or gap loan. As the
names imply, it is used to connect transaction (bridge) or fill a void between
transaction. The following are examples of the use of these loans.
- Your home is in foreclosure. You can sell it and come out with some money,
but you need time to do this. You are already have a buyer and have opened
escrow. You get a temporary loan to reinstate your mortgage until your sale is
finalized.
- You want to buy property, but have to act immediately. You cab either sell
other property or arrange financing to cover the purchase, but you do not have
time for either. You get a hard money loan until you can either sell or arrange
suitable financing.
- you have small business. You have an opportunity to buy inventory at a
once-in-a-lifetime price. You know that you can make a large profit, but you
need cash to take advantage of the deal. You get a hard money loan until you can
sell off enough of the product to pay it off.
All of these loans involve the borrow of mortgage in property - usually his or
her home - for a short period of time. Most of these loans are for one year or
less. They depend on equity for security, and the borrower's credit or
income-to-debt ratios are of secondary importance. The loans fund quickly - some
as fast as one week.
The up-front cost of these loans is usually one or two points, plus
miscellaneous fees. The higher cost comes when the loan is repaid. This can ne
as high as 10% of the balance.
Sub-Prime Loans
This type of hard money loan is the long term loan at an exceptionally high
interest rate with high points and fees. The loan can be used for any purpose.
It is the loan borrowers get when their credit or income problems disqualify
them from getting a B or C loan.
Predatory Lending
The reason predatory lending has risen so dramatically is that many lenders
operating in the A market have subsidiary companies making hard money mortgage
loans. This has made a huge amount of money available for these loans, as well
as aggressive and widespread marketing. The bigger lending institutions got into
the hard money business for two reason. First, these loans are much more
profitable that A loans. Second, the fast-rising cost of homes over the last
several years has made these formally high-risk loans low risk situations.
Foreclosed property that did not bring enough to cover the balance owed has been
a rarity in many areas of country.
Many predatory lending is avoided by shopping around. If you start with your
local bank, saving and loan, and credit union, you should get a pretty good idea
as to where you fit ad a borrower. If you only hope is a hard money loan, be
sure there is no way you can do without money. If you still want the loan, talk
to two or three mortgage loan brokers to try to find the best terms available
for you.
Finally allow yourself as much time as possible. If you know that you
are probably going to need to borrow money 6 month from now, don't wait for
month before exploring your options. The major reason people want the hard
money loan and look for hard money lender is that they need the money
immediately.
