Now don’t take me wrong – there is a time and a place for hard money loans in the market. When the banks will not budge on financing a business for their growth, start-up, or relocation, they can get the money they need by leveraging their real estate assets. Businesses can also pay for the interest from their hard money loans via tax breaks. They can write-off a specific portion (depending on the state, the nature of their business, and what they need the loan for) of their interest payments while they are in the term of the loan. Not bad if the business is sound and liquid. This is why hard money loans are common practice in the United States and Canadian financial community.

I would hedge against getting a hard money loan for the purpose of a personal property. You home residence is a long-term investment and you should never be paying hard money interest rates for a long-term mortgage. Easy to say, and it’s easy to do – just don’t do it unless there are mitigating circumstances whereby you HAVE to do it. If you do decide to mortgage your personal residence on a hard money loan, make sure you can make your payments on time, and make sure property is extremely sound. You are better off renting than using a hard money mortgage.

Hard Money Loan Lien Status and Interest Rates
Another thing that hard money lenders do is insist on having “first lien status”, meaning that if any liens are on the property, when it sells they get their money first. Another thing hard money lenders do is charge big interest rates, ranging from 10%-22%, and this the norm in all states and provinces in Canada and the United States. Pretty ugly right? As I mentioned above, if you can write-off the majority of your interest Bob’s your uncle (no, I don’t know anything about the U.K. hard money market.)

As the title suggests, you want your hard money loan to be a short term solution. Bank rates don’t apply to hard money financing like everything else – the interest rates mentioned above are based on the current state of the real estate market in which the property is in.

Hard Money Loan Default Rates

The “default rates” associated with hard money loans are brutal. The lenders cannot charge more Interest than regulated by law, so the highest rates you will see in the hard money market are 25%-29%. Wanna buy a house with your credit card? Nope. So if the borrow is unlucky enough (or unwise enough) to miss a payment, they’re going to be on the hook for some big vig.

Many Connecticut banks are waiting for you to come in and discuss refinancing since rates are so low and competition is so great. If you plan to refinance your existing home, you may need an appraisal to be completed to establish the current value of your home.

Once this is complete you will have some idea of how much capital will be available to you when you refinance your mortgage. Consumers can use these extra funds for all kinds of purposes. Many consumers will use these extra mortgage funds to pay off a car loan, or credit cards that may have been maxed out, or just go on the vacation of a lifetime.

Regardless of how you use your mortgage funds, refinancing does not have to be expensive. With competition and a bit of comparison-shopping, many banks will consider absorbing any appraisal fees and bank administration fees in order to obtain your mortgage business.

You are perceived as a good risk since you have a home and the mortgage is being placed against it as security. A good deal for the mortgage company and a good deal for you.

Why Home-buyers Consider Accredited Home Loans

If you have a poor credit score you still need to be buying real estate, but you don’t want to be flushing good money down the toilet every month by renting your home. You need to be spending $400-$2000 dollars a month on a mortgage payment, instead of a rent payment. This is why an accredited home loan can be a valid consideration.

What Do We Mean By Sub Prime?
When reading some of the accredited home loan web sites, don’t be confusing the term sub-prime as a description for interest rates. The term sub-prime is in relation to your credit score or FICO score. In essence, this means because your FICO score between 539 and 699, you are considered to be a high risk, sub-prime borrower.

Why Would You Avoid An Accredited Home Loan?
The whole reason private accredited lenders provide money to consumers to buy a house, condo, or mobile home, is to make money. They make money by charging higher than normal interest rates ; at the same time their risk on the loan is greatly reduced, as they simply repossess the property and get their money back. Depending on the condition of the home, where the house is, and the value of the property in the current market, they will usually make money when the home-owners default on their payments or ultimately default on the loan all together. As usual, if you have a bad credit rating, the deck is stacked against you.

When Is An Accredited Home Loan A Good Thing?
As you well understand, a bad credit rating really frustrates your ability to be a home owner, and an accredited home loan looks like a high-interest, expensive venture, rip-off. In many ways you are accurate in that assumption, but there is a time when an accredited home loan can work for you. If the real estate market is hot where you are buying your home, you can make more money on the appreciation of the property than what you are spending on interest payments. If you have poor credit and the banks refuse all your requests for a mortgage, you would be wise to only use an accredited lender to finance your family dwelling in a hot market. If you look at what some of these sub-prime lenders charge for interest rates, home owners ought to be sure their property will increase in value by at least 7-10% each year. Make sure you crunch the numbers on the accredited financing companies offer, and the estimated appreciation of your new property. You can use our loan calculator here if you so desire.

Before Applying?
Before you ever apply for an accredited home loan, make sure you take the policy to a reputable real estate lawyer, and have them scrutinize the contents of the accredited lender’s loan aggreement for you protection. Some of these financing companies who cater to sub-prime, bad credit consumers, will have sneaky language in their documents that can lead you down the garden path. Make sure you are not being nailed with a balloon payment further down the road, or “creative” term financing, where your payments and installments grow over the duration of the loan. Your lawyer will find these problems in the contract between you and the financing company, so make sure to spend that $100-$200 bucks for a lawyer’s opinion.

Don’t enter into a loan agreement that is unfair, because these are usually long term mortgages coming in at 20-30 years. This is not a decision that you want to be making with haste. We suggest that you clean up your credit rating first, and then find a mortgage with traditional lender such as your local bank, or perhaps a major nation-wide bank.

For more information on cleaning up your credit, you can visit read what some of our credit repair partners have to say.

What Is The FHA-203K Rehabilitation Loan?

The FHA (Federal Housing Administration) 203K Rehabilitation Loan is arguably one of the smartest federal loan programs ever launched, and is a branch of the Housing And Urban Development department. By using an FHA approved lender you may be able to qualify for a 203K rehab loan – which is or long term mortgage, adjustable or fixed, and can be used to upgrade your property. The loan can be spent on anything from simple weather stripping repair and replacement, right up to complete tear-down demolition projects. (you have to have solid foundation to be eligible for a complete demo)

Why Apply For The FHA-203K Rehabilitation Loan?

The reason you want to consider the 203K Rehab loan is because of the interest rate you pay compared to what a private lender or bank will charge you. You need to stay away from interim (short-term), high interest financing. Stay away from any kind of bridge loan or balloon payment financing offered by some of the banks. Usually this is how it plays out if you are unlucky enough to utilize the 203K loan;

• the home-buyer purchases a property or house that needs serious repair, or some basic TLC (tender of loving care), in which they procure financing from a bank
• then the home-owner borrowers money on the short term, paying a hefty interest rate on their money. Sometimes the home-owner will run into unforeseen problems during the revitalization effort, and be stuck with borrowing allot more interim money than they planned on originally (big $$$$ down the toilet….so to speak)
• after all the repairs are complete, and the rehabilitated property is ready for moving into, the home-owner must now finalize a long term mortgage with the bank

As you can see, due to the short term loan (or loans) involved, many Americans would not be in a financial position to afford fixing up what could be a perfectly respectable house or property. The FHA 203K Loan gives possible home-buyers an opportunity to buy a fixer upper house or unit(s), make the very best of it, and not be burdened with various short term loans. The HUD (Housing And Urban Development) department stands firmly behind the 203K, as it is a fantastic way to empower Americans – at the same time beautify urban areas with clean and respectable housing.

Are You Eligible For A 203K Loan?

There are some basic guidelines used by the Federal Housing Administration when approving a 203K loan. First of all, co-op units are not eligible. The number of units allowed is stipulated by the local zoning commission or authorities, and you won’t see the cash unless these folks give you the thumbs up. The house, home, or property must be standing for at least one year in time, and it has to be a family home housing 1-4 occupants.

How To Apply For A 203K Loan

If you want to be approved for a 203K plan housing loan, you simply fill out an application form with a lender that is approved by the Federal Housing Administration. The FHA approved lender will have the property appraised and have your credit rating looked over. If the bank believes the project is viable and long-standing one, they will grant the loan which is insured by HUD.

Why The 203K Rehabilitation Loan Is A Win Win Win

• the banks win because their risk is virtually removed when lending money for quality properties with HUD insurance
• Americans on a whole win because their cities and neighborhoods are being rehabilitated
• low income residents win because they can become home-owners (quality home-owners)
• the government wins because America is being rehabilitated and revitalized
• construction companies win because they receive secure contracts
• construction workers win because they gain employment
• all spin off employees and companies win as well

In Conclusion
As you can see, the overall benefits from the 203K rehabilitation loan go on forever. The department (HUD) rarely has to pay a claim by a bank or lender, as the banks tend to make sure each rehabilitation project is viable in the first place. This program simply loosens bank money and approved loans for millions of Americans who are not in a financial position to leverage personal assets in order to buy a fix up and rundown property.

Contacting The HUD

• Phone: (800) 697-6967 – Can be reached between 8:30 Am to 8:30 Pm, Eastern Standard Time, MON-FRI
• Mail: U.S. Department of Housing and Urban Development, P.O. Box 23699, Washington, DC, 20026-3699