Why are we talking about hard money mortgages on a investment property specialists site? Well obviously most beginning investors won’t have any interest in being a hard money mortgage lender, some of the more seasoned investors might be looking for some other ways to make money, while still having it be related to real estate in some form. So today we’re going to give a brief overview of a hard money mortgage and the pros and cons related to them.

Before we start though I’m going to just put a giant disclaimer out there though. Being a hard money mortgage lender is very risky. While it’s still backed by a real estate property, the hassle that can come along with this type of investment is a lot higher than your standard real estate flip or rental property. Approach with caution.

What are hard money mortgages? – They are a type of high risk mortgage where real estate is used as collateral. They have very high interest rates and a persons credit score isn’t considered at all. The borrowers income, employment, or savings also aren’t looked at. The interest rates very, but can range anywhere from 15-25% with annual APR’s as high at 30%. The terms are also very short. The research I did showed that most were 1 to 5 year loans. the LTV (Loan-To-Value) is around 50-60% which gives a lot of security to the lender. A good example is that if you have a home that is valued at $100,000 dollars you would be able to borrow between $50,000 and $60,000 dollars in cash.

Who are hard money mortgage lenders? – Hard money lenders are typically people who have a lot of liquid cash and can afford to take a high risk loan. If they are willing to go through the hassle it can be a win-win for them. They either receive a very high return on their money (15-25%) or they acquire a property that is work double what they loaned out. That is what makes hard money mortgages so appealing to a real estate investor. They often times get a nice property worth quite a bit of money if the borrow defaults on the loan.

It’s important to remember that hard money mortgages aren’t state or federally regulated and most likely you’re hard money lender will be a local individual. Usually the people who need these types of mortgages have extremely bad credit and would never quality for a standard “asset based” mortgage. It’s important to approach these deals with caution as an investor because the hassle is a lot greater that investing in real estate like we typically talk about. For some it can be worth the risk and hassle though, especially if you end up with the borrowers property.

Now the big question. Would I ever be a hard money mortgage lender? Probably not and that’s because I’m extremely conservative and because I hate stress. Would I ever take out hard money mortgages? Not a chance, but I know not everyone has been as fortunate as I have with money.

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