Avatar's Blog
» Why 20% Borrower Equity?
Posted on 12/23/2004
Hard money lenders require that borrowers have 20% equity in the real estate they collateralize for a loan. The lender will fund up to 65% or sometimes even 70% of the purchase price. The borrower must have 20% and the 15% balance can come from a seller carryback.
The reason for the borrower equity requirement is to ensure that the borrower has significant stake in the success of the project and the loan. If the borrower has no equity, s/he is more apt to drop off the keys at the first sign of difficulty, rather than try to work through the problem. 20% borrower equity significantly reduces the number of loans that go sour.
Posted in Miscellaneous
The reason for the borrower equity requirement is to ensure that the borrower has significant stake in the success of the project and the loan. If the borrower has no equity, s/he is more apt to drop off the keys at the first sign of difficulty, rather than try to work through the problem. 20% borrower equity significantly reduces the number of loans that go sour.
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