When it comes to hard money lending, you need to be aware of a few things from a legal standpoint. This blog post will list four of the most important things you need to know. Remember that this is not an exhaustive list, but it will give you a good starting point when understanding the legal aspects of hard money lending.
Hard money lending in brief
Hard money lending is a short-term loan typically used for investment purposes. Private lenders usually issue the loans, and the borrower’s property secures them. Because the loans are secured by collateral, they tend to be less risky for lenders. These loans also often have lower interest rates than unsecured loans. The reputable team from New Silver in Florida recommends that you opt for this type of loan should you be in the market for one. However, you need to be fully aware of the legal aspects of hard money lending before entering into any agreement.
Terms of a hard money loan
The terms of this type of loan will vary depending on the lender, but they typically range from six months to three years. The interest rate on the loan will also vary depending on the lender, but usually, it is higher than the interest rate on a traditional loan. Meanwhile, the loan amount is generally based on the property value used as collateral.
Repayment of a hard money loan
The repayment schedule for a hard money loan will also vary depending on the lender, but it is often shorter than a traditional loan’s repayment schedule. The loan may be repaid in a lump sum at the end of the term, or it may be compensated in installments. If you default on this loan, the lender may foreclose on the property you used as collateral. This means that the lender will take ownership of the property and may sell it to repay the loan.
1. Governed by state law
First, the loan agreement will be governed by state law. This means that the terms of the loan will be determined by the laws of the state where the loan is made. Even the rights and obligations of the parties are based on the laws of the same area. It is essential to be aware of this because it can significantly impact your rights and obligations as a borrower. For example, if you default on the loan, the lender may be able to foreclose on your property following state law.
2. It may require a loan agreement
The second thing you need to be aware of is that the lender may require you to enter into a loan agreement. This document will outline the loan’s terms, including the repayment schedule, interest rate, and other essential details. For instance, the loan terms may state that you will be responsible for paying the lender’s legal fees if you default. It is vital to read and understand this agreement before signing it, as it will bind both parties.
3. This may be subject to regulation
You also need to be aware that hard money lending loans may be subject to regulation by the state in which it is made. This means specific laws and restrictions may apply to the loan agreement, and it is crucial to be aware of these before entering into a contract. For example, some states have laws that govern the maximum interest rate of a hard money loan. This means that the agreement may be void if the loan agreement states an interest rate that exceeds the state’s maximum.
4. Can be risky
Finally, the loan can be risky. This is because your property secures the loan, and if you default on the loan, the lender may be able to foreclose on your property. Hence, it is vital to be sure that you can afford the loan and are comfortable with the risks before you agree. If you are unsure of anything, you should consult an attorney before entering into a loan agreement. A legal practitioner can advise you concerning the risks and benefits of hard money lending from a legal standpoint.
Now that you know a little bit more about hard money lending from a legal standpoint, you can start looking into whether it is right for you. As with any type of loan, be sure to research and consult a financial advisor before making any decisions. Rest assured that with some careful consideration, you should be able to find a loan that meets your needs and helps you reach your financial goals.