Hard money home equity loans, allow homeowners to get an amount against their home equity. The loan amount is provided by individuals and not by banks or companies and is set on the difference between the homeowner’s mortgage balance due and the home’s current market value. This article will inform you about a hard money home equity loan, its advantages, disadvantages, how it works, and more.
Highlights:
- Hard money home equity loans are a type of consumer debt.
- The loan is also known as a second mortgage or home equity installment loan and is generally provided by private lenders, not banks or companies.
- Hard money equity loans offer several benefits, including an easy process and low interest rates. However, they also come with certain drawbacks, including the risk of losing your home.
- Hard equity loans come in two varieties: home equity lines of credit (HELOCs), and fixed-rate loans.
- The loan amount is set on the difference between the home’s current market value and the homeowner’s mortgage balance due.
How Hard Money Equity Loans Work?
The borrowed amount that a homeowner allows will based partially on a combined loan-to-value (CLTV) ratio of 80% to 90% of the home’s appraised value. However, the loan amount and interest rates are charged based on the borrower’s payment history and credit score. In other words, the home equity loan amount will be set to your home’s value. If you cannot repay the borrowed amount within the given time, your lender might capture your house.
Pros & Cons of Hard Money Home Equity Loan
Hard money equity loan provides several benefits but there are also disadvantages:
Pros
- Easy to approve. It means you can get the cash amount in a short time.
- Getting a hard money home equity loan is simple for many borrowers because it is a secured debt.
- Interest rates of a hard equity loan are typically much lower than other consumer loans.
- A home equity loan will be a good choice if you know exactly the loan amount and purpose.
Cons
- You can go into more debt
- If the borrower is unable to pay the loan amount within the dead, you might lose your home.
Eligibility Criteria for Hard Money Home Equity Loan
A home equity loan is provided by individuals and not by banks and companies. Though each lender has their requirements, but following are the general requirements that the borrower needs to be fulfilled.
- 600+ credit score
- Stable income source
- Home equity must be greater than 20% of the home’s value
How Much Home Equity Loan a Borrower Can Get?
If you have a good credit score and payment history, then the loan amount will be a combined loan-to-value (CLTV) of 90% or less. It means that the existing mortgage balance can not be more than 90% of the appraised value of the home.
Finally, we can say that hard money home equity loans will be ideal for borrowers who know exactly for what purposes they want to use the money and loan amount. However, you should read the terms and conditions carefully before opting for a hard money equity loan.
Also Read,
How to Refinance a Hard Money Loan?
FAQs
What is a HELOC Loan?
Well, HELOC doesn’t exist in reality as it is a combination of two loan products. These are a home equity loan and a home equity line of credit (HELOC).
Is Hard Money Home Equity Loan Tax Deductible?
The interest paid on a hard money equity loan will be tax deductible only when the loan amount will be used to buy, build, or improve your home condition.
