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Hard Money Mortgage

When you have poor credit, you may be looking for a bad credit mortgage. However, if you do not currently have a steady income history along with your bad credit history, there aren't very many lenders who have loan products to offer you. One solution that is available but expensive is the hard money mortgage. This type of mortgage is being used more and more often for people who need a bad credit mortgage. 


If you have never heard of this type of mortgage product, you are not alone.  "Hard Money" is a term that refers to a loan that is asset based or secured to the real estate or home that the purchaser wants to buy.  These types of loans are generally not made for commercial property but are for individuals with homes that may be in a challenging financial situation, such as someone with very poor credit who doesn't have a good income history.  Often, people who are self employed and have bad credit may need this type of loan because they can't qualify for any other mortgage loan or mortgage refinance. 


With this type of loan, the credit score is not an important factor because the loan is being secured by the asset value of the property.  Generally, the private lender or private investor making the loan will not lend more than 60 to 70% of the quick-sale value of the property.  This ratio is called the LTV or loan-to-value ratio.  The reason for this lower LTV is that if the homeowner were to default on the loan and the property must be sold within one to four months, this is the value that the lender can reasonably expect to get out of the home.  As you can see, this is different from the market value appraisal.  The interest rate for a hard money mortgage is also usually much higher than for other more traditional loan products. 


When an individual takes out a hard money loan, his plan is usually to work on improving his credit score and income consistency so that he can eventually get mortgage refinancing at a lower interest rate.  This type of loan is not one that most people would actively pursue unless every other option has been exhausted.  This is one of the reasons it is often referred to as a last resort loan.   However, for a person who has the down payment but does not have the credit and employment history necessary for other types of loans, a hard money mortgage may be the best way to get into a house.