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 3rd party lenders who charge interest rates higher than the current market rates. The interest rates charged by hard money lenders are typically 5-10 percentage points higher than the conventional lenders. Hard money lenders will also charge "points" on a loan which is essentially pre-paid interest on loan. All this makes, borrowing from hard money lenders an expensive 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.
Hard money lenders will lend based on loan security and not on the applicants character or trustworthiness nor do they lend based on their credit score. Hard money loans may not have the best rates but they are flexible and can be an alternative option for applicants with low credit, or those who don't want to waste time waiting for approval from banks and credit unions.
Hard money lenders are found in various places. Your local newspaper probably provides a "money to lend" classified category. Check there first. There is also probably a local real estate investing association. Local hard money lenders solicit new business at these meetings. Finally, run an internet search for "hard money lenders" or "hard money loans." You are sure to find hits.
Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Hard money loans 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. Third-party lender who charge interest rates higher than the prevalent market rates for lending is called an hard money lender. Another benefit of hard money lending is that instead of lending based on your creditworthiness or character, money lenders will lend based on the security of the loan.
Published May 18th, 2007
Filed in Real Estate