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Hard Money Mortgage

The hard money mortgage, although expensive, is a type of mortgage being used more and more often for people who need a bad credit mortgage.  When you have poor credit, you may think a bad credit mortgage, which isn’t as good on interest rates is your only option.  Without a steady income history and a good credit score, there aren't very many lenders who have loan products to offer you.  Many people aren’t familiar with this type of loan.  "Hard Money" is a term that refers to a loan that is asset based or secured to the real estate or home that the purchaser wants to buy. 

This type of loan is generally not made for commercial property but is used for residential homes, when people are in a challenging financial situation.  One example of this may be a person with bad credit who doesn't have a good income history.  Often, people who are self employed and have poor credit may need this type of loan, because they can't qualify for any other mortgage loan or mortgage refinance. 

With a hard money loan, the credit score is not as important because the loan is being secured by the asset value of the property.  Generally, the private lender or private investor making the loan will not lend more than 60 to 70% of the quick-sale value of the property.  This ratio is called the LTV or loan-to-value ratio.  This protects the lender in that if the homeowner were to default on the loan, the lender could likely sell the property quickly for the loan amount since it is below market value and recover his money.  Usually the property will need to be sold quickly, within one to four months.  As you might expect, the interest rate for a hard money mortgage is usually much higher than for other more traditional loan products. 

When an individual takes out a hard money loan, his plan is usually to work on improving his credit score and income consistency so that he can eventually get mortgage refinancing at a lower interest rate.  This type of loan is not one that most people would actively pursue unless every other option has been exhausted.  This is one of the reasons it is often referred to as a last resort loan.   However, for a person who has the down payment but does not have the credit and employment history necessary for other types of loans, a hard money mortgage may be the best way to get into a house.