Subprime vs. Hard Money Lending
Sub-prime vs. Hard Money Lending
Sub-prime lenders and hard money lenders are often confused. Contrary to popular belief, they do not refer to the same types of financiers. Both traditionally serve as lenders for people who do not qualify for traditional loans through mortgage companies, credit unions, and banks. However, hard money lenders deal with much more extreme situations.
A sub-prime lender is a resource for those who have a poor credit history, lack sufficient funds for a down payment, or are unable to prove their income. Because these borrowers do not meet industry standards, they are seen as a high risk, and thus interest rates are higher than with a traditional lender.
Sub-prime mortgage interest rates highly differ. They are usually dependent on the borrower’s circumstances. The other fees associated with the loan, such as penalties or fees for procurement, are much higher than usual. Sub-prime lending can be extremely lucrative. Due to the increasing number of individuals with poor credit, there is an increasing demand for this type of lending.
Hard money lenders generally lend to those that sub-prime lenders will not. For instance, a hard money lender might consider a person who is facing foreclosure. Hard money lenders are considered last resorts. They do not base the loans on the borrower’s credit history but rather the homeowner’s equity in the property. The loans have extremely strict terms and are meant to be short-term.
Hard money lenders generally lend to those that sub-prime lenders will not. For instance, a hard money lender might consider a person who is facing foreclosure. Hard money lenders are considered last resorts. They do not base the loans on the borrower’s credit history but rather the homeowner’s equity in the property. The loans have extremely strict terms and are meant to be short-term.