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4 Commercial Hard Money Loans Requirements You Should Know


paperfree Aditi Bansal

Updated on Thursday, June 01, 2017

Commercial hard money loans are mortgages that are often used in both commercial and residential financing. The lender supplies the funds but has some requirements. These mortgages are meant for borrowers that have enough cash but may have a poor credit score.

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Commercial hard money lenders aren’t strict on the credit score because the commercial hard money loans borrower provides collateral. In most cases, collateral is often the property being purchased. Commercial hard money loans have high-interest rates, but borrowers consider this a good option to get funds for their projects.

First Lien

Commercial hard money loans are only meant for use in the first situation. In other words, you can’t use a commercial hard money loan as the second loan due to the absence of equity. Therefore, when you default from paying the loan, they will recover any proceeds.

Equity

Almost all commercial hard money loan lenders won’t agree to lend you any amounts above 60% to 70% of the property value. Therefore, for commercial hard money loan lenders to agree to finance you, you should invest in a property with direct equity, for instance, properties owned by a bank where you will be required to have money to put down. In most cases, you need 30% to 40% of the mortgage down in cash when closing. This means that you can only qualify for commercial hard money loans if you have some money.

Mortgage to value

This is a term that is used to define the amount of the commercial hard money loans to the worth of the property. For instance, if you want to buy a property worth $100,000 and you need a commercial hard money loan of $70,000, the mortgage to will be 70%. In commercial hard money loans, the value is often 60% to 70%.

Cross-Collateral

When you want to purchase a property, and you don’t have the money to put down, commercial hard money loan lenders can decide to cross lien. In such a situation they will put a lien on any other property that you own and have some equity.

Benefits

Commercial hard money loans can be a good alternative when you have a low credit, and if you’re a self-employed person and don’t want to have your income documented. You can use these loans for a flip or rehab, and a new building if you own other properties.



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