Hard Money Loans - What's it all about?
Who and what are hard money lenders? You've probably heard other talking about hard money and may have wondered just what it is and if it's relevant for you. Read on for a simple guide to hard money loans. The negative aspects will be introduced first with the positive apects being explained towards the end.
A hard money loan will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. That means it is generally amongst the most expensive money you can borrow.
Hard money lenders are third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding alternative.
So why would you use hard money loans? Well, for one thing, hard money loans are typically for around 65-70% of the ARV (after repair value) of the property. This is an important point because it means you can get finance for any rehab costs that you have ahead of you and if your ARV is sufficiently greater than your costs you can get into a deal with little or no money down.
If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.
Where should you look to find hard money lenders? The first place is in the "money to lend" pages of your local newspaper. The second place is at a meeting of your local real estate investing association. Local hard money lenders are often attending to solicit new business. Eventually, do not forget to check on the internet: just search for "hard money loans" or "hard money lenders."
There are several things to know when considering hard money lenders for your real estate transactions. First are some cons to hard money loans, the largest of which is that hard money will be leant to you at a much higher rate than prevalent from other lenders, typically 5-10% higher. They may also charge 'points' on the loan to ensure that they make a good return on it. There are pros to hard money lending as well, typically these types of loan are much easier to obtain and rely less on creditworthiness and more on the security of the loan, so hard money is much more flexible.
Published May 18th, 2007
Filed in Business, Career, Real Estate
