Hard Money Loans?

Question

I would like to know if my understanding of hard money loans is correct. Based upon the definition of a hard money loans from wikipedia, it is a loan that is secured by the real estate and not the person borrowing the money. Does this mean that if the loan is defaulted on, it will not affect your individual credit rating?

Jon Holdman · Answer

I can only speak for myself.

I would expect decent, though not necessarily great credit.  If you have 550 scores, it tells me you can't handle money.

If you don't make the payments, I expect a deed-in-lieu quickly and painlessly.  If I have to foreclose, rest assured its going on your credit history.  If there's damage, we're going to court and the judgment will get recorded against you.

I expect the property to support the loan.  Meaning, I'll lend you 70% of the ARV based on an appraisal by a licensed appraiser.  I'll look at the property and the comps in the appraisal and convince myself they all look acceptable.  With this LTV, there's plenty of room for me to fix it up and unload it and still get my money back.  But, there's also room for you to make a decent profit, so you have a real incentive to make it work.

Jon

Jason Cummins · Answer

It really depends on the lender to be honest. Some HML's dont require a bit of credit history.  This is slowly changing though with the market we are in.  Many of them are now requiring your credit history.

Eric Foster · Answer

I think what they were trying to say is that the loan is based on the property (as collateral) qualifying more so than the borrower qualifying…

As far as defaulting, I would say that it would or at least could affect your individual credit rating.