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Loan, Private Money

Private Home Equity Loans Explained

Hard money loans are a useful tool for anyone who does not benefit from the traditional lending process through banks. Whether due to personal financial history, credit score, or timeline, traditional loans may not be available or suitable for everyone. In this case, hard money loans can be an avenue for capital for nontraditional applicants. In the same way, private home equity loans are available to those who need to raise capital, and already have a property with equity invested. For investors, this can be a lucrative opportunity to advance one’s investment portfolio, while earning off of interest.

Home Equity Loans, Explained:

In simplest terms, the equity of the home is the amount the home is worth versus how much the owner paid off using their own funds. The higher the equity, the more likely a borrower will be able to receive a loan. In most cases with hard money, investors want to see a stake in the game from the borrower, ensuring that this is a fruitful opportunity for both sides.

A home equity loan, then, is a second mortgage or a refinancing opportunity that a borrower can use against their home. In this case, the collateral is the equity already poured into the home by the borrower. The amount the homeowner can borrow typically relies on the loan-to-value (LTV) ratio, with the amount taken out also relying on credit score and history of payment. With a hard asset used as collateral, home equity loans are typically easier to secure, and advantageous for responsible borrowers to add extra cash into their home.

Home Equity Loan Advantages

The advantages of home equity loans are numerous for responsible borrowers. For example, since borrowers receive payment in one lump sum, they can use it for larger home projects and renovations. With a source of income and an exit strategy, home equity loans can open up doors to enact one’s vision for their home in a responsible way. It also allows those who may not have otherwise access to funds to increase the value of their property over time.

For investors, home equity loans can come with higher risk, so borrowers can expect to see higher interest rates based on personal circumstances. Investors can see around a 10% rate of interest monthly return, adding to their portfolio in a passive way.

Home Equity Loans, Things to Consider

For borrowers, there are numerous things to think about before borrowing a home equity loan. For example, borrowers want to make sure they have a plan, purpose, and exit strategy in terms of their home equity loan. Unlike traditional loans, hard money home equity loans typically revolve around 6 months to 5-year repayment periods, meaning borrowers need to be on top of their payments. Like any home loan, the property itself is used as collateral, and home value can fluctuate over time.

For investors, partnering with a seasoned private lending company to find right fit borrowers can increase one’s portfolio while also partnering with trusted borrowers.

Whether looking to borrow or take your investment to the next level with private home equity loans, JMJ Funding will provide you with private lending options, simplified.

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