Hard Money Loans

For real estate investors there are numerous benefits and advantages to private real estate money versus hard money loans or mortgage loans to fund your real estate investing business. Knowing the advantages can mean the difference between making a real estate deal work or losing a good deal to your competitors.

As the credit-bubble continues to unwind, traditional sources of real estate financing are drying up and real estate investors need to find alternative sources of capital such as private real estate money.

Advantage #1: Speed and Cash Flow

The ability to close a real estate deal in less than two weeks is a huge advantage over having to wait weeks or even months for a typical bank loan approval. The importance of speed cannot be overstated in a competitive market and quick cash gives you a big edge over other investors.

Imagine if you are the seller and someone comes to you to buy your house and has a two or three month escrow period before closing plus several financing contingencies versus another investors who will close in two weeks with no contingences.

Not hard to tell which offer the seller will accept. And the real power of this offer is the seller may accept a lower price to close quickly with no contingencies. So not only do you get the deal from the other investor, but you get it at a lower price. The power of private real estate money is the ability to close quickly and drive better deals terms to your advantage.

Advantage #2: Simple Paperwork

Have you ever gone to a closing on a traditional mortgage loan and had to sign 2 inches of paper work. Now image going to closing and only signing two or three documents (yes that is not misprint).

Private real estate money deals are incredible simple and the total paperwork is normally less than 10 pages and includes two or three simple documents. The documents included in a private real estate money transaction are a mortgage (Deed of Trust), an installment note and possible a disclosure statement. The only other required paper work is to name your lender on your property insurance as you would in any normal loan situation.

Advantage #3: You Control Terms and Conditions

One of the incredible advantages of a private real estate money transaction is you control the terms and conditions of the loan. For example, you can offer a very short term loan of only 6 months if you know you are going to flip the property for quick profit. Or you can offer a 5 or 10 year term if you plan on holding the property for a long term rental.

You can also control the conditions of the loan such as not allowing a prepayment penalty for early prepayment. Most normal mortgages and hard money loans require a 1% to 10% prepayment penalty to pay a loan off early. With private lending transaction you control the conditions and can simply add a clause that allows an early prepayment without a penalty. That can mean a huge savings down the road.

Advantage #4: Reduced Fees and Costs

Private real estate money is less costly than mortgage loans or hard money loans. For example, most hard money loans can ultimately have total interest cost of 20% or greater by the time you factor in all the fees, points, interest and other costs. Even mortgage loans can be very costly with fees and upfront points factored in and the high interest rates most investors must pay versus home owners. Loans from private real estate money sources usually have no points and very few costs. The total cost of most private loans is somewhere in the 9% to 15% range with little upfront or back-end fees.

Advantage #5: Flexibility

Private real estate money provides tremendous flexibility for both you the borrower, but also for the private lender. The private lender can invest small amounts of $5,000 or less in deals or large amounts to fund larger apartments or commercial property purchases. You can also work with lenders to structure a term that fits the lenders needs.

A commercial hard money loan is a non-conventional commercial real estate loan that is not made by a traditional bank. This type of commercial financing has been in use for over 50 years. Such loans usually have a first lien on commercial property. If a hard money loan has a secondary lien, it is known as mezzanine financing.

There are three financing options for most commercial real estate scenarios: traditional banks, intermediate lenders and hard money lenders. The primary rationale for a small business considering a commercial hard money loan is that traditional or intermediate commercial financing options are not viable.

In those situations where traditional banks and intermediate lenders both say “NO”, it then makes good business sense to explore under what terms a hard money commercial loan might be available. Many viable small business projects can be funded ONLY via a hard money lender. Before accepting “NO” from the traditional banks and intermediate lenders as the “FINAL ANSWER”, a prudent small business borrower should determine if a hard money lender will say “YES”.

Commercial hard money loans are typically completed more quickly than a traditional commercial loan. Compared to traditional bank business loans, commercial hard money loans will generally involve a higher interest rate (prevailing range of prime rate plus 4-8% for typical scenarios), higher fees and shorter-term financing (one to three years). However, because many hard money loans offer interest only terms, the payments can be lower than a fully-amortized loan with a lower interest rate.

Three common commercial financing scenarios using hard money loans are described below.

COMMERCIAL HARD MONEY LOAN SCENARIO # 1:
Low Credit Scores

Most traditional commercial loans have very strict standards for acceptable credit scores by the guarantors for a commercial real estate loan. Hard money loans are much more flexible and low credit scores are acceptable.

COMMERCIAL HARD MONEY LOAN SCENARIO # 2:
Need to Obtain Commercial Financing Quickly

Traditional commercial loans will normally require several months to complete. Hard money loans can be obtained within a few days in some situations. This difference will be critical if commercial financing is required within a short time frame.

COMMERCIAL HARD MONEY LOAN SCENARIO # 3:
Special Small Business Situations Not Easily Understood by Traditional Banks and Intermediate Lenders

• Foreclosure
• Bankruptcy
• Special Purpose Properties
• Tax Liens
• Losses
• Negative Net Worth
• Less than one year in business
• Environmental Requirements

For each of the three scenarios described above, a commercial hard money loan will involve shorter-term financing, higher fees and higher interest rates than a commercial loan from a traditional bank or an intermediate lender. However, the critical point which must not be overlooked is that for most situations covered by the three scenarios, commercial financing would be declined by either traditional banks or intermediate lenders. It is under these circumstances that a commercial hard money loan becomes a practical and viable solution for many small business owners.

Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.

Author: Stephen Bush
Article Source: EzineArticles.com
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What is hard money used for?

A: Hard money is generally used as a bridge to allow the borrower or property to be brought into compliance with conventional financing guidelines or sold. It is generally a short to medium term solution (1-5 years) and it is used for all types of real estate: commercial, retail, office, industrial, raw land, construction, land development, multi-family, single family homes and manufactured homes.

Q: Why would anyone borrow hard money when banks charge lower interest and less fees?

A: There are many reasons why a borrower would choose to use private or hard money over less expensive institutional financing, but the following will address the most common uses. Speed of funding is the most common reason — banks typically take a minimum of 45 days to fund a residential loan, 60-90 days to fund a commercial loan, and 120 or more days to fund a construction or development loan. Private money, however, is typically funded within two weeks, and can be funded as quickly as 24 hours in certain cases. Another type of project suitable for private money is a property that either lacks cash flow to meet bank requirements or requires physical improvements. Banks will not typically fund a loan secured by a property that requires rehabilitation prior to its use, and thus the borrower will obtain a private money loan to purchase and rehab the property, and then payoff the private money loan with conventional financing. Sometimes a borrower will purchase a commercial property that has no tenants. Banks will not loan on such properties but private money will provide a bridge loan to purchase the property and provide the borrower with time to lease up the property. Once the leases are in place and have been “seasoned” for at least 12 months, a commercial lender will refinance the private money loan with institutional financing. Banks are also prohibited by law from making most types of raw land loans, so private money is practically the exclusive source of financing for raw land. Equity in the subject property or other properties owned by the borrower is another factor. For example, Coppercrest Funding http://www.coppercrestfunding.com loans based on the value of the property and not the purchase price, and is also able to cross-collateralize the loan with other properties, so we sometimes lend 100% of the purchase price.

Q: What are the interest rates?

A: Private money rates generally range from 12 to 14%. The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower.

Q: What fees are involved?

A: Hard Money Lenders charge a loan fee generally equal to 3 to 5% of the gross amount of the loan. There is also charge typical lender fees, such as a document preparation fee, a loan processing fee and an application/inspection fee. There are also third party fees involved, including escrow fees, title insurance fees and account servicing fees. CopperCrest Funding doesn’t not charge hidden junk fees, but some lenders do, so make sure you read the paperwork or have an attorney take a look at it for you.

Q: Can the fees be paid from the proceeds of the loan?

A: Yes, so long as there is enough equity in the project. Most often, all fees other than the application fee are paid from the loan proceeds.

Q: Is there a pre-payment penalty?

A: Generally hard money loans have a 3-6 month minimum interest requirement. For example, with a 6 month minimum interest clause, if the borrower repays the loan in 4 months, there is a penalty of two months interest. If the borrower repays the loan after six months, then there is no pre-payment penalty.

Q: How quickly can a private money loan close?

A: CopperCrest Funding have closed loans the same day when presented with a complete loan package, but we typically take one to two weeks. Since hard money is coming from private sources, and every deal is unique it is important to ask about closing timelines on a case by case basis, and each lender is different.

Q: Is an appraisal required?

A: Typically hard money loans require an appraisal, but if there is not enough time to obtain an appraisal and there are good comparable sales information then the lender can waive the appraisal requirement.

Q: Why do they call it “hard money”?

A: We have heard many explanations, but the most common answer is that the lending is based on “hard” assets as opposed to the borrower’s credit or income.

Hopefully this article answered some of your questions about hard money. If you are in a unique situation whether you have a great one of a kind investment opportunity or are facing a foreclosure because of an unexpected happening, hard money may be the solution for you. Remember, just like with any loan or mortgage, ask a lot of questions and read the paperwork.

Author: Matt Hartley
Article Source: EzineArticles.com
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When you need funding urgently but you can’t wait for weeks to search lenders for traditional loans, you can opt for Hard Money Loan.

A hard money loan is a type of borrowing in which a borrower receives loans based on the value of a specific parcel of commercial real estate. This means a loan where the lender approves the loan request by deciding upon the value of and equity in the assets, without spending considerable time traditional lenders spend on documentation and verification of borrower for the same amount of loan. The most important issue in case of hard money loan is that this loan involves much higher interest rate than other categories of loans.

Key Features of Hard Money Loan

While in traditional loans a lender spends considerable amount of money and time on verifying borrower’s credentials, his income, source of income, tax history, credit history etc, in case of hard money loan, lenders avoid the above procedure because the loan amount in hard money loan is based upon the value of the real assets or collateral anchoring the loan, therefore, hard money loan is provided at the least possible time. Hard money loans are also those loans that need to fund quickly and the borrower cannot afford to wait for weeks or months for a traditional lender.

Hard Money Loans: Key Factors

1 Fastest Processing

2 Not linked with borrowers’ credit record, income level, source etc.

3 Can be borrowed even in case of legal & operation issues

4 TERMS: Flexible loan terms between 6 months and 20 yrs

5 LOAN SIZE: £500,000 to £75 million

6 COLLATERAL: Real estate and other fixed or liquid assets

7 Special Situation Financing Structure offered for all type of commercial or residential real estate development that cannot be funded by the more traditional lender

Loan Structure

A hard money loan is provided when the related real estate is offered as collateral and the amount of loan is based on the quick-sale value of the property against which the loan is made. Normally, most lenders fund in the 1st-lien position, meaning that in the event of a default, they are the first creditor to receive remuneration.

The loan amount in case of hard money loan is decided as the a percentage of the quick-sale value of the subjected property. This percentage is called the Loan-to-Value or LTV ratio and typically fluctuates between 60-70% of the value of the property. Value, in this case is determined as ‘today’s purchase price’ This the amount that a lender could reasonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a 1-4 months’ time.Therefore, based on the above, a hard money lender, may structure a loan as follows:

68% Hard Money Loan

18% Borrower equity (cash or additional collateralized real estate)

14% Seller carry back loan or other subordinated (mezzanine) loan

Eligibility: Are you eligible for Hard Money Loan?
It has been seen that hard money loan is ideal for borrowers who are unable to borrow from traditional source. Such borrowers are often surrounded by legal & operational issues. In such cases, hard money loan providers solve the problems and get the property suitable for borrowing from traditional lenders. Though the type of property to be considered as collateral depends upon the lender, normally the following income producing and non-income producing properties are considered suitable for collateral:

Income producing Properties:

Apartments

condo/co-op conversions

retail/shopping/strip centers

mixed use properties

industrial, office buildings

hotels/motels

medical, mobile home parks and restaurants

Non-income producing properties:

land acquisition

development and construction

bank workouts, foreclosures and bankruptcies.

LOAN Amount and Interest Rate

Loan size varies from lender to lender but the normal range is £500,000 to £75 million on different categories of properties. Repayment duration is normally in between 6 months to 20 years. Interest rate is based on various factors such as loan amount, repayment duration, risks involved etc but usually remains in the range of 10%-13% with a low fees starting at 2%.

At time, there are few lenders who provide upto 100% loan but very rarely. Typically for a hard money residential loan, borrower’s 15% equity in land or liquid assets is taken as sufficient collateral. Similarly, in case of commercial property 25% equity is usually taken as sufficient security.

Loan Processing

Processing documents for hard money loan is easier and fast compared to documentation for other categories of loans. One can fill out the online application form from the website of different lenders or can phone these lenders’ representatives who provide fast service on call.

Author: Steve A Clark
Article Source: EzineArticles.com
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Gold Quest Group www.GoldQuestGroup.net is a hard money lender located in Houston, Texas.

A hard money loan is a type of asset-based loan financing in which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money is similar to a bridge loan which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing.

Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value (LTV) ratio is 65-70%. That is, if the property is worth $100,000, the lender would advance $65,000-70,000 against it. This low LTV provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

Home Equity Loan – Equity is defined as the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc. In simpler terms, home equity is how much house you have earned.

Equity is the difference between what your house is worth and what you owe on it. For example, if your house is worth $120,000 and you owe $100,000, your equity is $20,000. You can get a home equity loan, depending on your credit rating and a number of other factors, for the $20,000 that you have built up in equity.

Construction Loan – This type of loan is temporary and used for construction of buildings and homes. A construction loan also gives the contractor small amounts of money over the construction period. It is not till the job is completely finished when a permanent loan is used to pay off the rest of the construction.

To find out if a Hard Money Loan or a Bridge Loan or other Real Estate or Commercial Loan offered by Gold Quest Group is right for you, contact us at (713) 621-6466 or online at www.GoldQuestGroup.net

Have you been looking to buy a property for long and it is on sale now. To your disgust you are suffering from insufficiency to fund your dealing. If it is the case with you, then hard money loans can solve your problem. With hard money loan money is lent primarily to help you buy a commercial property. Hard money loan can be borrowed from private firms or even individual lenders. However these are not offered by government agencies.

Lenders disburse the money on the basis of the value of property you are buying. They are never concerned about your credit rating. Even people with CCJs, arrears, bankruptcy etc are eligible for hard money loans. So, it is better to look for a hard money loan instead of a traditional loan when you need a comprehensive amount and are in urgency.

Hard money loan is also a good option for those who need money to renovate their property before selling them. Once, your property is renovated, you can raise its market value and then you can easily repay your borrowed amount by selling the property.

Hard money loans come at little higher interest rate as they are meant for people looking to materialize some commercially viable opportunity and also for those who have poor credit ratings. Even then it is a better option to go for than to look for financial partners or to file for bankruptcy. Most of the lenders will offer you loan at a bit higher interest rate and it can be marginally higher than what you get with other traditional loans. It should not be misunderstood that hard money loans are difficult to be repaid. You can use the money to add the value of your property then repayment becomes as easy as any other loan.

Since majority of these hard money loans are disbursed by individual lenders and the approval entirely depends on their discretion .Once you get an affirmation it is a matter of 7-14 days that you can acquire the amount. There is minimal documentation involved and the process need not go through various official steps.

Hard money loans have a timed value of money as they are available when you need some for your commercial transactions. So if you find a lucrative property in offering or you simply wish to add value to your property to squeeze the maximum out of its resale value and you don’t have adequate finance you can opt for hard money loans.

In the world of real estate investing, people are always on the look out for different ways to make an investment purchase. Typically the property would simply be bought & mortgaged in the traditional manner but as home values increase and the cost of living rises buyers are seeking out other ways of making the down payment on properties. One way that this can be accomplished is through the use of hard money loans. Now, one must be careful in purchasing with a hard money loan as interest can stack up quickly as most interest rates range between 10 and 16%. In comparison to a normal mortgage this is a fairly high rate. The best way to make this kind of loan work is on a home where the owner is looking for a quick sale and the property has the potential to sell for greater than the purchase price.

The most attractive aspect of a hard money loan is the fact that it can allow a buyer to act quickly to take advantage of a particular home sale. An investor will have to plan carefully and be intelligent and educated about the terms of the loan and the value and viability of the property. An investor should be sure about the attraction of the property as with a higher interest loan the whole point is the flip the property quickly before the payments start to pile up. Additionally the loan should be designed to comprehensively cover the costs of purchase and renovation if necessary or desired. in such a situation the buyer will need to have everything organized ahead of time in terms of renovations or construction to the home and should have a definite timeline as to when things should be complete and the home can be listed. This will also take an intricate understanding of the local real estate market and the trends that dictate it. There are certain times when the market will be hot and times when it will be cooler and the sale of the home will have to be a planned event that takes advantage of the peaks of the market.

In planning a purchase with a hard money loan, be sure to sit down with your realtor and explore all the available options before taking the plunge. They are the best suited individuals to help plan the purchase and subsequent sale of the property. They will also be able to direct a investor to loan professionals that are reputable and honest. With such a wealth of dishonest mortgage companies as this country has seen in the past years, it is essential that an investor has a good amount of background on the lender that they choose to deal with. Good Luck!

From the frying pan into the … Business owners that “elected” to secure a Commercial Hard Money loan for their business are often surprise how quickly the time passes when they are expected to pay off that debt. There are of course only 2 real solutions to this. 1. Sell the property and pay off the loan or 2. Refinance the debt with another lender. The third option is to call your rich uncle and have him pay it off.

The game plan of course with most business owners is to give themselves some time to restructure their books, business, improve their credit score and essentially put themselves in a stronger position to get a conventional mortgage in a year or two. However, this may not be enough time or the problems were more difficult than expected.

We see a lot of people that their primary issue is their personal credit score with the belief that they will increase it dramatically but at the end of the term there score has only moved up slightly. Regardless of the reason, the borrower may not be eligible for a typical conventional commercial mortgage.

One traditional option for business owners to get of the hard money loan is to go the SBA 7a loan route. This is because the 7a program allows credit scores as low as 520, loan to values as high as 90% on refinances and the borrower is allowed to use projections rather than just historical financials which may not show enough income to service the debt.

But this option has had several negatives that make it, almost as low of an option as the hard money loan to begin with. For example the rate normally floats over prime at around 1-2.75%, adjusting once per quarter – with no caps on the rate. In addition, the SBA normally requires a Guarantee Fee of 2.75% of 75% of the total loan amount. So in short, the benefit is that the borrower gets an option besides hard money and the rate is normally lower, depending on what Prime is than what they could get from another hard money lender.

However, not all SBA lenders are the same and it pays to be informed. For example there is a bank that offers the SBA 7a with a 5 year fixed rate at Prime + 1 and the bank absorbs the guarantee fee… As of this writing Prime is at 5.25% so most borrowers rate would be 6.25% fixed for 5 years and amortized over 25 years. This is one of the best commercial mortgages in the industry – regardless if the borrower is perfect or not.

So, if you’re facing a ballooning hard money loan and you operate your business out of a building you own you may consider going the SBA 7a route. Regardless get out there and shop because there are more options out there than your local bank is aware of.

Hard money is a staple term in the world of real estate investing. It is also a word that beginners in the business find hard to understand and a form of loan that keeps rehabbers flipping more and more houses without spending a dollar.

Hard money is issued by hard money lenders to investors, wholesalers, or rehabbers. Those involved in real estate investing like to use this kind of financing as hard money lenders do not care about the borrower’s credit score. Instead, they look at the deal the borrower wants to close using the money. In short, if the deal is good, the money will come to the deal. This is because hard money is also collateral-based. If the property has a potential to return profits, then you will likely get a loan.

Borrowers prefer negotiating with hard money lenders as it is easier. Unlike in traditional lenders, those in the hard money business usually operate individually. That means you only have to convince one person to get a loan. A loan application in a traditional lender is usually is processed by a team and must pass through several steps before it is approved or rejected.

Such process is time-consuming, bringing us to another advantage of hard money loans. This kind of financing is issued fast. Within just days, you will know if your application is approved or rejected. That means you’ll be able to plan another move faster in case your request is denied.

In some sources, hard money loans can be approved in just two days after the submission of complete documents. RehabHardMoney.com uses this kind of system. Borrowers in need of fast cash can go to RehabHardMoney.com and fill out a form. This form will make “pre-qualify” you for loans and other services Rehab Hard Money offers. It will basically find you hard money lenders based on your location and specific needs. Upon signing up in the system, you will also receive FREE reports that will help you be acquainted with hard money loans. You’ll receive the “7 Secrets to using Hard Money to Your Advantage” and “5 Mistakes almost every Investor makes when Borrowing Hard Money” plus access to a video titled “How to Get & Use Hard Money Funding.”

When considering a home purchase you will want to excercise many options other than the traditional lending facilities and these have been known for the highest interest rates. If the traditional mortgage lenders are not able to meet your financial needs, you may consider turning to hard money lenders. By going through hard money lenders, you can close a faster loan and get access to your cash sooner. If you are starting a business, buying a business or you want to upgrade your current business, getting a hard money loan might be perfect for your situation.

Many companies offer
HARD MONEY LOANS , and if they can’t finance you, you should have no problems finding hard money lenders that will back you and your business. You can finance equipment, commercial real estate, small business loans, construction loans, and more with a hard money loan.

Equity based HARD MONEY LOANS can be funded in as little as two weeks when you apply with hard money lenders. Private lenders can use your commercial property as collateral for these quick and easy loans. Most loans have up to a 75% loan-to-value ratio, and have a super fast turnaround time for funding.
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A residential HARD MONEY LOAN is a kind of loan in which a borrower gets funds based on the value of a specific commercial or residential real estate. The term hard money refers to the difficulties in acquiring a loan. HARD MONEY LOANS offer high interest rates and lower loan-to-value ratios, as there is no government institution that backs the lender. The loans are given against the value of real estate collateral.

Residential HARD MONEY LOANS are loans given by private lenders on the basis of the value of the asset or property as opposed to the traditional banking criteria of credit scores, tax returns, and income statements of the borrower. Residential HARD MONEY LOANS are temporary bridge loans that are provided for acquisitions, refinancing, foreclosures and people who file for bankruptcy. The interest rates for these loans are high, but it is cheaper than taking on a financial partner or filing for bankruptcy.

In general, HARD MONEY LOANS offer interest rates and points that are 50-100% higher than traditional bank loans. This has led to the impression that they are tough to repay. However, HARD MONEY LOANS are considered to be beneficial for people looking for sources to help them get loans, for example, to renovate residential property before selling or renting it.

The hard money lenders usually consider income-producing properties such as apartments, retail or shopping centers, industrial, office buildings, hotels, motels, medical institutions, and restaurants. They also provide loans for non-income producing activities such as land acquisition, development and construction, bank workouts, foreclosures and bankruptcies.

Most private investors look for a safe and secure investment with a return that is better than what they will receive from the bank. As residential hard money loans are secured by a property with usually 30% – 50% equity, the investor is well protected and receives the benefit of the higher interest rate return.