Investment accounts and retirement accounts.Expensive jewelry, watches, or gold and silver items.Here are a few examples of items that might be used for collateral: What is hard money? Basically, a tangible asset, like gold, silver or property. They won’t check your credit, but they will ask that you offer something you own in exchange if you cannot pay back the loan. Instead, they work by taking collateral, or hard money, against the loan. Hard money loans, on the other hand, usually do not work by assessing your past credit. The higher the score, the more likely you are to pay your borrowed money back - and, crucially, the more likely you are to get a reasonable interest rate from the bank. Your credit score lets banks and other agencies know how likely you are to pay the money they lend you back, based on how reliably you’ve done that in the past. ![]() They can assess that by looking at your credit history, your personal track record when it comes to borrowing money (say, for college, or to buy a car). For instance, banks want to know that you’re a reliable lender. Traditional mortgages come with some requirements. You purchase the property with the money they’ve lent you, then you make payments back to them over the course of ten to thirty or so years, all as part of a manageable debt repayment strategy. So, instead, they take out a loan from a bank or credit union. Few people have the liquid cash on hand to simply buy a home outright. It’s easiest to understand how hard money loans work by contrasting them with traditional loans or mortgages. You can skip ahead to any of those topics by using the links here:īefore you can decide whether a hard money loan is a reasonable option for your situation, it’s good to know how they work. In this post, we’ll cover the basics of hard money loans, like how they work, what you can use them for, and some of the advantages and disadvantages of using a hard money loan. However, for those who want to close on property sale quickly, or those who have a low credit score, hard money can be an enticing alternative. ➔ Hard money definition: a hard money loan is a loan borrowed against tangible collateral, rather than by using a credit assessment ![]() Traditional lenders usually base their willingness to lend you money, and the interest rate they’ll charge you, on factors like your income and credit score. Hard money loans are a way for borrowers to take out a real estate loan without having to work with traditional lenders, like banks, credit unions, or mortgage agencies.
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