Real Estate

Hard money lenders are your solution for quick loans and emergency financing sources

What are hard money lenders?

Private investors who lend their money at high rates that local banks do not accept.

Hard money loans are easier to obtain and are financed very quickly at the speed of light. It is known especially with real estate investors as asset-based loans. The loan collateral becomes real property. They are far from conventional loans, as the underwriting guidelines for private money are very different from those of local banks.

For those looking for emergency funding sources, or who have situations that are urgent and need to close quickly in days, not weeks for their money, hard money is a solution period! Credit scores or bad credit is not a factor in most cases, although there are hard money lenders who do look at borrowers’ credit history and are credit-based, but for the most part they are not credit-based lenders. On credit.

Based on their own lending criteria, HMLs lend short-term money from 6 months to 1 year to borrowers who use it for a variety of profitable purposes. These can include the following types of real estate loans: bridge, refinance, development, acquisition, rehabilitation, etc. Since hard money is more expensive than traditional sources (14% + interest rate and 2-10 points + in origination fees), borrowers generally make a financial profit by using hard money, so the high interest or points are generally offset by financial gain. The cost of the loan is not a problem when they can earn $ 150k and pay $ 30,000 to use their money, would you use it if you could earn $ 150k and pay $ 30k to use it?

What kinds of conditions can you get with hard money loans?

These types of loans vary from one private lender to another. The initial application fee, due diligence fee, and commitment fee may be charged and vary from lender to lender again. They will generally finance a loan for 50% LTV on raw land and up to 50-70% LTV on the finished product, at an interest rate of 14% + (depending on what area of ​​the country you are in at times) and for a period of six months to three years. They will also charge between 2 and 10 points as an initial fee, which will be paid with the income. It can be interest only or amortized.

Some lenders will finance interest, origination fees, rehab money, etc. others will not. Ultimately, when selecting an HML, borrowers will need to understand how these options best fit their plans.

What makes private money a great source and option for financing?

Local banks and credit unions meet a defined need for low-cost money. Borrowers would love to use them for all their real estate needs and deals. However, there is a market where traditional lenders cannot lend money. That’s where private money comes in and why they exist. They meet a need that local banks cannot meet due to government regulations, strict underwriting guidelines, lower risk profiles, longer financing terms, etc.

Top 10 reasons to consider when deciding on hard money loans

1. SUPER FAST SPEED

You can close in 5 to 14 days after obtaining all the necessary documentation, banks can take between 45 and 60 days.

2. DOCUMENTATION REQUIREMENTS ARE EXTREMELY LOW

It requires documentation, but not as much as traditional lenders, the fund is based solely on the value of the property and not on the credit standing of the borrower.

3. BAD CREDIT IS NOT A PROBLEM

Bankruptcy, foreclosure, and a FICO score below 490-600 are not a problem. Traditional lenders almost always require a great credit history.

4. VERY FLEXIBLE

Flexibility in loan structuring … incredible! Terms, interest reserve, withdrawal schedules, cash withdrawals, financial transfer, etc.

5. GAP / BRIDGE FINANCING

HMLs are often very experienced real estate lenders who understand that projects do not always follow the given plan. If there is a gap in funding and the loan and supporting documentation make sense, HMLs will typically finance. Whereas, IL guidelines are generally not flexible and reject loan applications without interruption if borrowers go off schedule.

6. LOANS TO FOREIGN NATIONALS NO PROBLEM

Foreign nationals can obtain a loan from a hard money lender, but it will be difficult to obtain a loan from a traditional lender who has trouble making loans to non-US citizens.

7. WILL LEND ON MORE RISKY OFFERS

Nonprofit churches are not a problem with hard money lenders, but with traditional lenders who are concerned if they will have to foreclose on a church loan and the bad publicity they will receive.

8. PERSONAL GUARANTEES NOT REQUIRED

Loans based on the value of the property so no personal guarantees are necessary. Local banks always require personal guarantees.

9. FLEXIBLE LOAN TO SECURITIES (LTV)

They are more flexible than traditional lenders, as they will decide which loans on value (LTV) to accept based on their affinity for the project, cross guarantee, possible equity participation, etc. Traditional lenders will reject loans as soon as possible if the LTVs are too high.

10. SUBORDINATED LINKS

Hard money lenders will lend 1st, 2nd, 3rd or lower as long as the property value is there. Local banks can do a second and almost never a third. Typically, traditional lenders always want to be in the first position.

What should you expect from a hard money loan?

If you have a fantastic deal with a super LTV and can’t go to a local bank due to bad credit or you need financing in two weeks or faster. Now that you know and know what hard money is and the value of the concept, you can send the loan to a private lender. You will pay more money for the bottom line of the loan than your local banker, but it will be easier and faster to close your deal.

Each deal is unique, case by case; terms vary and each deal structure may be different. Lender criteria are adjusted based on the specifics of each deal, so borrowers will need to be flexible.

Here are some things to keep in mind when applying for a hard money loan:

* Title insurance is a must

* All delinquent taxes, judgments, etc. and other links on the property will generally be removed from the entries unless specifically excluded.

* Insurance will generally add to the lender as coinsurance

* Fund control is always established in construction, development, and any loan that has budgets * Borrower will pay all closing costs, fees, etc. no income

* Many lenders require that the property be placed in a single asset LLC, to which the loan is made.

* Borrower must be prepared to assign rentals

* Interest, in most cases, at least in part will be reserved or paid in advance

* Some HML require an upfront application fee, due diligence fee, and commitment fee. Make sure you understand these fees and how they will be used and if they are refundable.

* Almost all lenders require borrowers to have money in the deal. Additional collateral may be required by cross-guaranteeing other properties to keep LTV acceptable.

copyright @ 2008

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