Hard Money Loans

Hard money loans are the amount being borrowed to solve some urgent financial problems. The term hard signifies it’s quite Herculean to obtain because these loans are not provided by banks or financial institutions rather they are disbursed by private financial groups or lenders known as hard moneylenders. Hard can also be interpreted in different manner as there is high upfront cost involved and exorbitant interest rates are being charged. These loans also have high origination fees and cost more than an average mortgage (in some cases going as high as twice that of average mortgage).

Hard money loan is generally explored as the last resort. It should be understood like if one is willing to sale his/her business venture or the property and he/she thinks with a little bit of renovation and repairs the money generated can be quite high then hard money loans can be the best suited option for him/her. All he needs to do is to obtain the loan utilize it make some extra money and return it.

The uniqueness of hard money loans lie in their various characteristics like they have private lending sources. They come with short interest term of one to three years they charge upfront fee on closing before three months of the due date that is quite astronomical. There is limited number of debt covenants and they are shorter in duration. Moreover the failure in repayments results in the sale of the assets to nullify the debt.

Hard money comes in forms like hard money business loans or residential hard money loans. The hard money loans are usually secured by real estates of commercial viability. Hard money borrowers get the fund based on the estimated value of the commercial or residential real estate. The lenders are interested in money generating properties such as apartments, shopping malls, office buildings, hotels, hospitals and so on. However potent income generating activities like land acquisitions, bankruptcies are also seen with interest.

People who have been turned down the mortgages by the financial institutions because of various reasons like having a poor credit history, non competence to pay as they lack in desired income etc. also look upon the hard money loans as their saviors. Hard money loans are also sought by persons who are falling behind the repayments of their mortgage or fear the foreclosures.

The investors are lured by the typically high return on their amount which banks fail to provide them. So investing in hard money loans to borrowers having equity of 30-40% in the property seems to be a better proposition to them. These loans are given on the appraised value of the commercial property unlike traditional bank criteria which seek too many documented proofs like credit card scores, tax returns and income statement of the borrowers. Lesser paper work and lesser verifications make the procedure to obtain these loans very brisk.

Author: Steve A Clark
Article Source: EzineArticles.com
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Commercial hard money should only be thought of as an option after you have exhausted all other sources and have come to the conclusion that you just won’t qualify for a conventional loan.  The choice, though hard for many borrowers, is normally simple.  Either lose your business or building or accept the terms offered by the hard money lender. 

It’s a survival tactic.  You’re giving yourself something very valuable in exchange for the expense of the loan – time.  Time to repair, time to restore whatever the issues are.  Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc.  We see so many borrowers let the egos get in the way and end up turning this into something it’s not.    

What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it.  And no matter how bad it is, you can still have some pride in that.  Many people simple hide and let the problems overwhelm them.

Remember the old sales saying of comparing apples to apples.  You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago.  You have to be realistic and compare it to your current alternatives.  And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building. 

Say you have a building worth $2,000,000 and owe $500,000.  You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan.  Or say you take on the wrong partner because you are pressed for time and need cash.  Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner.  And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender. 

Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive.  Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000.  You would pay $60,000 in fees…  Versus losing $1,500,000.  It’s hard, but simple.  Don’t let your ego get in the way of this one.  Face the problem head on, and fix it.   

Why would any borrower accept 15% rates and 5% on the front of a hard money commercial loan?  Because their other options are worse.  For example they may lose a substantial amount of equity out right or have to take on a partner that may take a higher percentage of their equity than a hard money lender would charge in fees.

Also the commercial hard money loans are easier and more reliable to attain than finding, negotiating and bringing on a partner or waiting months for a conventional loan to close (assuming the borrower qualifies).  Partners also have the high potential of creating legal issues if the project does not work out as planned.

Hard Money Commercial Loans  

For borrowers seriously considering going with a hard money commercial lender it is wise to only use a source that has been referred to borrowers by an experienced, unbiased third party.   This segment of the industry is filled with unethical people that have the bad habit of taking $15,000 good faith deposits with no intention of funding loans.  For many borrowers this $15,000 may be their last chunk of cash and they can’t make the mistake of going with the wrong commercial hard money lender.   Borrowers have almost no recourse either as most have to sign agreements stating that the fee is non refundable and the Letter of Intent is only a letter of “interest”.   Which of course, relieves the hard money lender of funding the deal. 

America is going through tough financial times; it is no secret that many Americans have fallen victim to unscrupulous lending practices and that the most important terms and conditions were not disclosed during the negotiation of a home loan.  We are going through a financial bubble and because of reforms to lending practices home owners are desperate because they no longer qualify for readjustments with their current lender.

As the saying goes, desperate times call for desperate measures but, that measures that most people are taking are definitely not the best ones.  A few years ago property owners counted with their home equity to bail them out of any financial problem but because of the current situation properties have partially lost value and there might not be enough equity to refinance a loan; unfortunately for home and property owners, credit card companies know that the average American no longer counts with equity in their properties so they are constantly bombarding people with ephemeral offers which later on turn into enormous headaches.

But the solution to a tight financial situation is not to turn to credit cards because their interest rate can go as high as 30% (compounded daily) and they will just add to the problem.  Hard money loans on the other hand, are better financial instruments which provide affordable interest rates and terms that will help any property owner sail through this economic recession.

Hard money loans can go as high as 70% LTV (loan-to-value) but, the best case scenario would be to keep the LTV below 65% in non-owner occupied homes, hard money loans can also be issued on an owner occupied property to relieve financial stress.  These types of loans can be amortized over a period of 30 years according to the borrower needs

Stopping Foreclosures with Hard Money Loans

Because of the banking crisis more and more home owners are losing their properties to foreclosure, the sad part is that many of those foreclosures can be stopped or avoided only if the note holder deals with a knowledgeable hard money lender.  In California alone foreclosures have been up 260%, this figure is based on market analysis performed on July, 2008 by housing authorities.

Hard money loans can be used in order to salvage a property and avoid foreclosure.  However, a property owner needs to act as fast as possible in order to avoid interest and penalties from accruing and worsening the situation.

Many real estate investors overlook hard money loans as a strategy for acquiring property. That’s because these loans are typically used by desperate property owners looking for a way out of the real estate market, rather than into it. But hard money can work for anyone, and it can be particularly useful if you’re a new investor looking to build your portfolio quickly.

Hard money loans can generally be described as high interest loans available to borrowers with any credit rating, as long as they can can provide solid collateral – usually equity in real estate, such as a home. These loans are almost never issued by banks or deposit institutions, but rather by private lenders who specialize in short term lending at high interest.

Normally a home owner in need of a big loan would apply for a second mortgage, using real estate equity as collateral, but bad credit can make things difficult here. If a home owner has missed a few mortgage payments, the banks may refuse to provide more financing – hard money might be the only option in this case.

The limit for hard money loans typically hover at about 60 to 70 per cent of a property’s quick sale value, defined as the price a lender could reasonably expect to realize if the borrower defaulted on the loan, and the property was liquidated fast. The interest rate for a hard money loan is usually in the 15 to 25 per cent range.

Investors can take out hard money loans to buy a property, as long as they provide acceptable collateral – in this case it could even be the property they’re buying. The strategy here is to find a pre-foreclosure property, or any real estate with an owner prepared to sell below below market value as long as the sale is fast. If the investor can re-sell the property at full market value, before too much interest is paid on the hard money loan, he or she can make a significant profit. Hard money loans have helped many successful investors get started in real estate.

It would be an understatement to say that the decline in the real estate market changed the lending environment. Lenders who used to allow stated income loans no longer offer them, or they may claim to offer them but decline 99% of the stated loan submissions offered. This is extremely bad for investors who have made their incomes solely from real estate investing, or other self employed endeavors.

Primarily because when they do their taxes they have a lot of items to deduct from their income, and so their tax returns do not effect the true gross income that they earn. W2 employees do not have this problem, as they are qualified based on their full gross income and even if they do write off their incomes, the tax returns are hardly ever requested when W2′s are provided.

A good Residential Hard Money Lender, understands this is the case for full time real estate investors, and they will not have much taxable income on purpose at the end of the tax year. Even if tax returns are requested, its just to verify that the investor really does what he said on the application provided, and not to calculate debt to income ratios.

Another benefit to obtaining a Residential Hard Money Loan is that the loan is based on the After Repair Value, and not the Purchase Price. With a conventional lender, it doesn’t matter if you are buying at 10% of value; they would still require a certain percentage down payment on that purchase price. In other words, conventional lending methods ignore the fact that you are getting the property at a deep discount.

When you obtain a mortgage with a Residential Hard Money Lender you can rest assured that the After Repair Value (ARV) is being considered in the transaction. In a lot of cases the deep discount an investor is getting will allow room for the lender to roll in closing costs, rehab costs, etc… This decreases the amount of capital that an investor has to put into their projects, and therefore leaves more capital available so that he can do more deals.

If you have a real estate investment in mind, and are concerned with minimizing risk, and maximizing return on investment, you should consider utilizing a Residential Hard Money Lender. Its easier to qualify, and they are more flexible on the structure of a transaction.

Are you an investor looking to minimize risk, and maximize ROI by partnering with an aggressive Residential Hard Money Lender? Does including closing costs, rehab costs, and basing your loan on After Repair Value sound appealing?

If so, you owe it to yourself to see if you too can qualify for an Investor Rehab Loan by visiting this website: http://www.residential-hard-money-lender.com/

There are different standards and strategies that real estate investor’s use when evaluating properties. In order for us to get involved with a property, the following standards are judged for the worthiness of any rehab project:
“You should look for the worst house on a decent block”
1) Whether your strategy is to “flip” properties, or to hold them for their rental cash flow, it’s important to be able to draw potential buyers, or strong potential tenants, as quickly as possible. With this in mind, you should look at properties on streets that are maintained properly. This does not limit you to higher end homes. There are many “blue collar” areas that properly maintain the condition of their homes and yards. However, a street that has poorly maintained properties or many vacancies do not lend themselves to fast turn around sales or well suited tenants.
Always remember that this is an investment. You take on a large risk, and a lot of work as a rehabber. No matter how much loving care you put into your property, you can do nothing about the condition of your neighbor’s property.
2) Make certain that there is no structural damage to the property. This could be a fatal blow to your investment!
“You make your money when you buy a property, not when you sell it!”
Purchasing Formula
There are many formulas used for the successful purchase of a rehab project. It’s important to use one. There must always be a comfortable cushion between the purchase price and the selling price of investment property. This cushion price will help you achieve a successful investment, even if you have repair cost over-runs, or hold on to the property longer than you had anticipated. Remember, every day that the property is not sold or rented comes right off your bottom line. The interest, taxes, insurance, and utility bills compound each day. Buying the property at the right price will protect you from Murphy’s Law.
Our Funding formula:
1) Establish an after repair value for your property.
(Get “area comps” and view each one. Pick out the property that has a street that is most similar to your house’s street, and a structure that is closest to your house’s structure, and then compare the square footage, amount of bedrooms and bathrooms that are all listed on the “comps.” This will help establish a real fair market value for your property).

2) Multiply the ARV x .65 (After Repair Value)
(This will give you 65% of the ARV).
3) Establish a comprehensive and accurate list of repairs that you plan to do to the property, and estimate the costs for each repair.
(This is important. If you are knowledgeable and experienced in doing repair work, you may not need help. If you are not experienced or skilled in this, find someone who is and have them draw up a plan. Even if it costs you a little money to get them out there, this could save you thousands of dollars).
4) Subtract the cost of repairs from the 65% value of the ARV. (After Repair Value) This should be the maximum price that you pay for the property! This is a conservative formula, and it usually works well. Remember, anyone can buy a property at close to fair market value, but with your costs and risks, you must do better!
Written by Jim Olivero

There is the always the “cost associated” with the hard money loan. In comparison to a traditional business loan, a hard money loan will be much more costly. You can expect to pay a fair amount more in interest rate in exchange for having the money faster. Consider the higher interest rate as the cost you pay for the convenience. As an addition, up-front fees will add to the cost of the loan overall and it may do so considerably. This can end up making the loan financially debilitating in the long run.

Extensions are hard to get on hard money loans. If you get to the end of your interest term and need an extension, you may not get it. In that case, the entire balance of your loan will be due immediately. If you do not have the money, it gets even worse for you. Most hard money loans will foreclose on your property much faster than a commercial lender. Essentially, if you don’t pay you could be out of your property as fast as the law will allow. Thus, there are considerable risks when taking on a hard money loan.

Lastly, a hard money loan will likely have a “prepayment penalty”. In other words, paying off the loan early can often cost you as much as 3 months of interest. Even if you don’t think you will pay off early, it is nice to know you can. With a hard money loan, the option to pay off the loan early without considerable consequences is just not there in most cases. In the end, the cons linked with a hard money loan must be fully considered long before you decide to take on the awesome responsibility of such a loan.

For more inquiries on how to saveyourself in debt you can go to totaldebtservices.com. Its a financial company that offers free debt consultation across the United States.

Foreclosure rates are on the increase all over the country, causing alarm. The market has also seen an increase in defaults and higher loan-to-value ratios are making it more difficult than ever before for borrowers to find refinancing. However, no matter how bleak things seem, there is still an alternative to foreclosure in the form of hard-money loans. Also referred to as bridge loans, since they provide temporary financing for credit repair and property seasoning purposes, hard money loans can help to stop a foreclosure.

Homeowners who have been out of work and have now found a job may still be unable to meet the full payment demanded by the bank. But, due to improved circumstances, they will be able to make their regular monthly payments. A home foreclosure at this stage would ruin their credit rating and their current ability to make payments, seems like an unnecessary and extreme step. However, the lender may not be willing to accept anything less than the payment in full, leaving the homeowner with very few options. This is a typical situation where a hard money loan can be of help.

Depending on the amount of equity in the house and its current worth, some homeowners can qualify for a hard money loan. Such loans are generally offered by specific lenders and in spite of no special costs being involved, these lenders can close on a loan quite quickly. Hard money loans are available from groups of private investors, pooling their money to invest in real estate. These loans are used when the borrower has limited time left to close a loan. Alternatively, they can be used when the borrower does not want to give out their credit history or when they plan to keep the property only for a limited period of time or when there is already a plan to refinance in a short while after closing.

Real estate is the collateral asset in hard money loans and the lender assumes a lien on the property. The size of the loan, its rate and the term is based on the equity, the marketability of the property and the financial standing of the borrower can be used quickly by homeowners running out of time and options, to stop a foreclosure. There are myths about these loans, based on the impression that they have soaring interest rates and low loan-to-value ratios. In truth, hard money loans do carry a higher interest rate, but they are generally in the 12% range rather than the 18% range. The key issue is the valuation of the property. One of the methods for determining value is an appraisal by an objective third party with no connection whatsoever to the transaction. An accurate valuation of the market purchase price must be extensive and include relevant information about the property. Most such reports also feature a comparison with similar properties and an overview of the local real estate market, along with other relevant issues.

Homeowners who qualify for these loans may have to pay a premium to get this new loan to stop a foreclosure in progress. Hard money lenders can charge 4 to 5 points of the loan as their fee. Hard money loans are a perfectly viable solution for homeowners in foreclosure who are able to meet the requirements. Although expensive, these loans provide foreclosure victims a short term solution, giving them a chance to keep their homes. It allows them to rebuild their payment history.

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.

Author: Thomas Morva
Article Source: EzineArticles.com
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