What Happens if you Default on a Hard Money Loan?

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Getting a loan from a hard money lender is much easier and more beneficial than getting a loan from the bank – the lender approves your loan faster, gives a more significant amount, and can give you a loan even if your credit score isn’t the best.
However, there are different life circumstances, and sometimes it happens that you cannot repay the loan you’ve taken out. So, what happens if you default on a hard money loan?

Interest raise
Usually, a contract clause says about an interest rate rise in a case of hard money loan default. The rate may shoot up or even double in some cases. Thus, your monthly payments increase until the default status is fixed or you find another way to pay off the lender. So, read the terms of the contract carefully to be aware of the details and discuss them with your lender before taking out a loan. If you let the loan stay in default state for a long time, the hard money lender will make the next step quickly.

Died in lieu of foreclosure (Lieu deed)
Some lenders may offer you this option instead of foreclosing. You just give the property back to the lender and do not stress with all these details of foreclosing.
Also, you need to know that any foreclosure negatively affects your credit report and decreases further chances of getting a new hard money loan.
Anytime you get a hard money loan, make sure the lender you chose is ready to sign a release of lien if you agree to give the property back as collateral.

Keep in mind if the lender takes your property and sells it in a foreclosure, it will decrease your credit score from 85 to 160 points. But, of course, the number of points depends on your current finances.

The best way to avoid loan default is to understand how hard money loans work. Hard money lenders use entire property as collateral. The lenders usually cover up to 70% of the current property value or its value after renovation. For example, you buy a property at $80,000, and its price after renovation is $100,000. A hard money lender will give you up to 70% of the $100,00 price. Subsequently, the borrower will be responsible for the remaining money, which is $10,000.
By the way, we offer hard money loan programs that let you get 85% of LTV.

LBC Capital is a direct lender that offers various hard money loan programs for all types of clients. Unlike banks, we have 24-hours loan approval and seven days loan close. So whether you need a loan for commercial, construction, fix&flip property, or land, we are ready to lend up to 25 million.
Do you still have any questions? Then, call our loan advisor at (818) 761-7234 to get free assistance.

Check our recent article on hard money loan refinancing here.

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