Why do Arizona hard money interest rates seem to be higher than bank rates?

Why the high interest rates on Arizona hard money loans?

You may have heard the term “hard money” floating around in recent years and considered the possibility of purchasing a home this way. However, the little bit higher interest rates that come along with Arizona hard money tends to scare borrowers away. Make sure you know the basics of Arizona hard money before writing it off completely--you never know how you could make it work for you!

The first thing to understand is that Arizona hard money loans are equity-based. That means your eligibility for a loan does not come from your credit, ability to pay, or employment status. In fact, the loan is solely based on property value. What does this mean for you and your lender? Quite simply, it means that you have not been able to get approved for a traditional bank loan. It also means than a hard money lender is taking a significant risk by allowing you to borrow his or her personal money for a time, honestly not knowing if they will get it back. Hard money loans take a significantly higher risk than banks because the loans are based so little on you and so much on the property value.

Another thing to remember is that Arizona hard money loans are typically shorter than bank loans. Usually, these loans last anywhere from 6-36 months, but can fluctuate depending on the situation.

Another reason borrowers experience a bit higher interest rates is because they are not required to pay any application fees, recording process fees, documentation fees, or closing costs. All of those expenses add up quickly and they have to be accounted for somehow.

The main reason Arizona hard money loans charge a bit higher interest rates because of the significant risk taken on behalf of the lender. These lenders go where banks refuse to go, and they lend to those individuals who would never be loaned to otherwise. They don’t look at a borrower’s ability to pay--they simply trust that that borrower will do what they say they will.

What about LTV in terms of Arizona hard money?

Simply put, the LTV stands for the Loan to Value ratio of an Arizona hard money loan. Sometimes, borrowers can receive up to 80% of the money pertaining to the property value. Most of the time, this number is anywhere between 65% and 80%.  This is determined on a case by case basis and is a decision made between you and your borrower.