The world of real estate involves many different types of loans and financial assistance. Generally people do not like to give all their cash money on a property. So even if they could afford to buy a property in cash, it is not the preferred way. Getting a loan by securing a property is not unheard of. But most people do not even know that there are many different types of loans when it comes to real estate. The most basic loan that people are generally very aware of is the home mortgage. A home mortgage is basically money lent to a purchaser to enable him to actually make his purchase. Other types of loans like hard money and home equity are not so popular.

What is a hard money loan? It is a short term loan that takes usually one year or less and the value of the secured property is used as collateral. It is also the type of loan you acquire when you are in need of money as soon as you can possible get it. Due to the fact that the loan is always readily available and that the risk is higher than that of conventional loans, the interest rate and fees are also higher. Sometimes the rates are doubled or tripled from the normal rate of a conventional lender. The lenders will also appraise the value of the secured property themselves usually by hiring a third or independent party to do so. The good news is that this type of loan involves less paperwork and red tapes.

While most conventional lenders will conduct financial background checks on you to see if you qualify for the loan, hard money lenders will simply base your qualification on the actual value of the property you are putting as collateral. So if you have been having a tough financial time that shows up on your credit report as well as bringing your credit ratings down several notches, you don’t even have to worry about that because your finances will not be part of their consideration. However, it is advisable that you be very careful and make sure that your hard money lender is legit and you don’t end up owing money to a loan shark.

A home equity loan is different than hard money loans. Not to be confused with home equity line of credit, it is actually getting a second mortgage on your home. The loan term itself is significantly different. While the latter’s loan term is usually one year or shorter, home equity loans pay back period is about the same as a conventional home loan; which is roughly about 15 to 30 years. Home equity loans also put up the property as collateral. The interest rate for home equity loans is also noticeably lower than a hard money loan. Your property will be appraised to estimate its value and after that your lender will decide if the amount of loan you are requesting is equivalent to the appraised amount.

Like any other conventional loans, your lenders will check to see if your credit score is good and you have an excellent payment track record for your current mortgage. Usually people apply for home equity loans when they plan to remodel their home to increase its market value. When the market interest rate declines, it is also a good time to consider getting a second mortgage on your home. If you are on an adjustable-rate mortgage, this is also a good way to save money as you can convert it to a fixed-rate mortgage at a very low interest rate. The downside is that you will be extending your loan term so you will be in debt for a longer time. So although you will significantly reduce your monthly payments, but in the long run you could probably pay more than with your first mortgage.

Now that you know the difference between the two, you do not have to wonder which loan is suitable for you. It is recommended that you get professional experts to advise you before making a decision. This is because although each loan is designed for difference circumstances, not one case of people in debt is the same as another. So your particular debt situation might call for a different solution. To avoid making a mistake, it is advisable that you ask the experts before you delve into it.

Author Bio: loan hard money loan home equity loan

Category: Finances
Keywords: loan, hard money loan, home equity loan