Why the high interest rates on Arizona hard money loans?

Borrowers of Arizona hard money loans sometimes find themselves frustrated at the high interest rates required of them. However, it is important to step back for a moment and remember how and why they got the loan in the first place.

Hard money loans are equity-based loans that are not dependent upon the borrower’s financial information at all. In fact, approval for a loan does not even take into account employment history, income, or ability to pay. The approval loan is based solely upon the appraised value of the property. Also, Arizona hard money loans tend to be shorter than average bank loans (about 6-36 months) and often loan up to 80% of the property value. Often, these numbers are determined within a matter of hours.

All of those things taken into account, 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. That is the main reason Arizona hard money loans sometimes have high interest rates.

Another reason borrowers experience high 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 when taken care of by the lender, need to be accounted for at least slightly by the borrower.

What is an LTV in terms of Arizona Hard Money Loans?

In essence, LTV stands for the Loan to Value ratio of an Arizona hard money loan. Most of the time, borrowers can receive up to 80% of the money pertaining to the property value. The LTV in a hard money loan can be as low as 65% at times, as well. The property being purchased with hard money is considered collateral so that there is enough equity in the property should the property go into foreclosure.

Arizona hard money loans may seem unattractive to some home buyers because of high interest rates and low LTV’s, but it is importnat to remember the benefits and realize that these types of loan are often approved when no other lender would do such a thing.