Hard Money Loans

Hard money loans (HMLs) are a special type of loan backed by real estate collateral. Generally short-term loans with slightly higher interest rates, hard money loans are typically made by private individuals or companies not affiliated with larger banks. Though few people truly understand the hard money lending business from either a lender or a borrower’s perspective, the market represents an important opportunity for investors and borrowers alike.

A borrower usually takes out an HML loan using real estate property as collateral. The hard money lender will provide the loan on a “loan-to-value,” or LTV, basis. The “value” of a given property is defined in the business as the amount that a lender could reasonably expect to receive from the rapid liquidation of the real estate, should the borrower default and force a foreclosure. Generally, the HM lender will offer cash at a 65% to 70% LTV ratio – that is, up to 65-70% of the property’s current value.

HMLs are often more expensive (that is, they carry a higher interest rate) than many other types of bank loans because lenders often accept more risk of default in making the loan. Despite the higher rate of interest, borrowers may find HMLs attractive for several reasons:

- They do not require the stringent standards imposed by banks

- They are less influenced by a poor credit score or rating

- They have less need for acceptable documentation

- They can be used as “bridge loans” until other financing can be obtained

- They are often faster than traditional loans

Many borrowers choose to take out HMLs because of the lower requirements to qualify. People who face imminent foreclosure or who need money immediately often find that hard money loans are the best – or only – option.

However, because hard money loans have substantially higher default rates than traditional loans (due to less restrictive credit requirements), lenders usually take the first lien on the collateralized property, in addition to attaching higher interest rates. This lien is a legal claim to the real estate which essentially gives the lender first right for compensation from the sale of the property if the borrower should default on the loan.

Regulation of the hard money lending business varies slightly from state to state, but laws are generally non-specific and fairly loose, with a few notable exceptions, where limits on interest rates are set low enough to discourage most hard money lenders from doing business.

For more information on hard money lending for mortgage brokers, visit the website of the Pitbull Mortgage School at http://www.pitbullmortgageschool.com.

Joseph Devine

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Some of the more sophisticated real estate investors try to avoid hard money loans due to the high interest rates. However, a hard money lender may prove to be beneficial for the right type of property. Many individuals will be surprised to learn that a large amount of successful real estate investors often turn to hard money lenders. A hard money commercial loan is an asset based loan in which the borrower receives funds secured by the value of the real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial property loans and are almost never issued by a commercial bank or any other institutional lender. A hard money commercial loan is simply an advance for a commercial venture for which conventional funding is not available. It is money that is difficult to get elsewhere. The purposes for which these loans can be obtained include property acquisitions, construction, investments, business and industry refinancing.

There is a greater need for suitable collateral to obtain a hard money commercial loan. Appraisals from a third party on the collateral may not be necessary because a hard money financier may be experienced enough to assess the value of the property. However, in most cases an appraisal is warranted. Commercial hard money is similar to traditional hard money, but may sometimes be more expensive as the risk is higher on investment property or non owner occupied properties. Commercial Hard Money Loans may not be subject to the same consumer loan safeguards as a residential mortgage may be in the state the mortgage is issued. Commercial hard money loans are often short term and therefore interchangeably referred to as bridge loans or bridge financing.

Hard money interest rate is not dependent on the Bank Rate. It is instead more dependent on the real estate market and availability of hard money credit. As of 2007 and for the past decade, hard money has ranged from the mid 15% – 25% range. When a borrower defaults they may be charged a higher “Default Rate”. That can be as high as allowed by law which may go up to or around 25% – 29%.

Hard money lenders can be approached directly online or through brokers. In either case, shopping around and comparing the rates and terms would be important. The main consideration in taking a hard money commercial loan is whether it would generate enough money to comfortably service the debt. A sophisticated investor knows how to look for undervalued properties and negotiate a great price especially if the seller just want to relieve him/herself of the property. If you find a great deal on a property, weigh your options and do your calculations to determine if it would benefit your in obtaining a hard money loan.

Author: Varondria Williams
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You may have heard of a concept called hard money lending, and you may be wondering how it differs from conventional bank financing. Either type of financing is available for both commercial and residential real estate loans. The key differences are in three parameters: 1. Cost 2. Timing 3. Availability The cost of hard money is generally higher than conventional financing. Hard money lenders offer loans at a higher interest rate and with more points due at closing. A hard money lender is generally taking a bigger risk and feels justified in making more money off the loan. In addition, the money loaned is typically personal money rather than institutional money, which means that the profit margin must be higher to make it worth the lender’s while. The amount of time required to get a hard money loan is vastly shorter than the time it takes to get a conventional loan. This can be a huge advantage when a loan is being sought to avoid foreclosure or to close on a hot real estate deal that is only available for a short time. Some hard money lenders can close in as little as 24 aE” 48 hours. Conversely, most conventional bank closings can take up to 45 days for residential properties and even longer for commercial loans. Another key advantage to hard money lending is that loans are available to people who may have less than perfect credit or have financial problems. Conventional loans are based on the creditworthiness of the borrower, as reflected in his credit bureau report and FICO credit score. Hard money loans are based solely on the equity standing in the property to be furnished. Hard money lenders are basing their loan terms off of the real estate collateral. For example, a Hard money lender is going to be more willing to make a $100,000 loan on a property worth $200,000 than he is to make a $180,000 loan on a property worth $200,000. Hard Money lenders base their loans off of the collateral in the property. They are more concerned about underwriting the loan based off the property being their asset than the borrower. As long as the property is full of equity, it is usually a safe loan for a lender. Hard Money lenders will usually base their loans off of the value of the property and not necessarily the purchase price.

If you are purchasing a property way under market value, you may want to consider a hard money loan in order to reduce or eliminate your down payment. Some hard money lenders will even allow you to roll all of your acquisition costs, closing costs, construction costs and even mortgage interest payments into the loan in order to purchase a property with a true, no money down loan. So, if you are buying a property that is selling far below its value or refinancing a property that is full of equity and need a loan in a hurry, it may be worth it to consider a hard money loan. You need to be aware that the cost of credit will be higher, both in points and in interest rate, but the cost may not be your primary concern. If you will be rehabbing the property and selling it, you will only have to pay the higher interest rate until the property is sold. Your profit margin should more than pay for the higher cost of the money you were able to borrow quickly without a high credit score. Jason Balin DC MD VA Hard Money Lender

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Jason Balin www.hardmoneybankers.com DC MD VA Hard Money Lender

Who knows the term hard money?

Hard money is private money lending, money you will receive from individuals that will loan you their money against your real estate, hard money lender is the bank and the bank will Loan you their money and put a lien against your real estate, the same with hard money lenders.

What is the difference between the hard money lender’s programs and the bank across the street?
1. Hard money lenders can help investors with large loan amounts, while banks will make it very difficult on the borrower to loan these large amount, so the loan would probably end up with an insurance company to loan the money and the requirements are high.
2. Hard money lenders can fund any hard money loan within a week, while for the banks it will take at least a month or even more.
3. Hard money lenders will ask for very little documentation, while the banks would ask for almost everything you have, taxes, income, assets, history of the property before and plans for after the purchase, business license, basically they will definitely want to see more from you to loan you some money.
4. Hard money lenders have guidelines but they can make exceptions without processing it through a whole underwriting team- while the bank need to go through different departments and underwriters and processors just to make an exception, and then the exception will not get excepted.

As you see to get a hard money loan is much easier then to get a loan from a bank because of the whole process, the banks are big companies and big companies have many different rules inside their companies, and to get an exception for these rules is almost impossible, and that is why many investors would rather go with a hard money lender.

So now you’re probably thinking what is the catch with the hard money lenders?
OK, so let’s talk about all the reasons why you should not consider applying for a hard money loan:

1. Hard money lenders for their services will charge you 4 to 9 points on the loan- while the banks will charge you only 1 to 2 points.
Example: If you have a loan amount of $1,000,000 and your hard money lender will charge you 5 points up front then you will pay $50,000- while the bank will charge you 2% which is $20,000, that is a bit difference but under different circumstances for some people it’s still a great deal.
2. Hard money lenders because of the fact that they will loan you money without showing your credit history and your income they will set the loans interest rate 9%-15%- while the banks will set your loans interest rate to 7%- 10%, again that is a huge difference if you’re thinking about it but for these people that want the hard money loans it’s still a great deal.

You have to understand that most investors or home buyers can not qualified today with banks for any type of Loan, hard money lenders can get you the deals you want (foreclosures, reo’s) without even thinking about showing all the unnecessary documentation, all you need to have is some money in your pocket if you’re purchasing, and if you’re refinancing then you need enough equity since the hard money lenders will probably go up to 65% at the most, also to find good hard money lenders it’s not so hard, it’s actually very easy because there are many private hard money lenders that are looking for real estate properties and notes to buy so they can make their points up frond and of course the high interest rate, if you will think about it, it’s much better then put the money in the bank.

Example: If a hard money lender put $1,000,000 in the bank and the bank will pay him 5% a year- while if he will loan the money to an investor that want to purchase a property or to refinance a property, he will charge his 5 points and he will get 15% interest rate on his money, that’s a big difference.
Good luck to you all investors out there.

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. 

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/

A hard money loan is a type of asset-based loan, which is usually provided by a private lender, oftentimes an individual.

Terms vary between lenders, are usually more specific and strict than with conventional lenders, and they often come with high interest rates. Typically, a maximum of 70% of the home’s market value will be loaned by the hard money lender.

Hector Milla Editor of the “Best Mortgage Loan Modification” website — http://www.BestMortgageLoanModification.net — pointed out;

“…It is possible to refinance a hard money loan into a more traditional mortgage on a foreclosure or any other property; however, the borrower will want to fully research the terms of both the hard money loan and refinancing loan. He/She will also want to make sure they qualify for the refinancing that they want…”

Qualifying for hard money may be easier in certain aspects(often credit score is not considered) than with typical lending institutions, so this is an important point to consider.

If the deal is not structured right, there may be seasoning issues with the institution when the decision to refinance is made. Seasoning is a term that refers to the length of time that the property has been owned by the seller. Different types of loans have different seasoning requirements, and these will need to be fully understood before setting up the deal.

Many hard money lenders will not issue a loan on a home that will be the borrower’s primary residence, so this will also need to be considered.

The new value of the home at the time of refinancing will need to be verified, and any repair or fix-up costs will need to be validated through receipts and other paperwork. The investor may also need to wait from 6-12 months to refinance depending on seasoning issues.

“…In conclusion, it is possible for a foreclosure property to be refinanced from a hard money loan originally used to purchase the home –or other property– but this will depend on several factors: the terms of the original loan, the terms of the new refinanced loan, and whether or not the buyer qualifies for both loans. This is not a situation to jump into without thorough and proper research…” H. Milla added.

Further information about how to get professional assistance with a mortgage loan modification by visiting; http://www.BestMortgageLoanModification.net

Hard money loans are a specific type of asset-based loans. In this type of loan, a borrower receives funds that are secured by the value of a parcel of real estate. These loans are paid back with a higher interest rate than conventional commercial or residential property loans. This type of loan is rarely, if ever, issued by a commercial bank or other deposit institution.

Hard money loans are very similar to bridge loans. Bridge loans typically have similar criteria for lending. They also have similar costs to the borrower. The primary difference between a hard money commercial loan and a bridge loan is that a bridge loan frequently refers to a commercial property or investment property that is in transition. The property may not fully qualify for traditional financing yet. Hard money commercial loans refer not only to asset-based loans with a high interest rate but also loans for a financial situation that is possible distressed. Examples of this include cases where someone is arrears on an existing mortgage or where bankruptcy and foreclosure proceedings are already in process.

Hard money mortgages, both commercial and residential, are made by private investors. They typically make loans only in their local areas. The credit score of the borrower is not important because the loan is secured by the value of the collateral property. The maximum loan to value ratio is 65-70%. This means that if a piece of property is worth $100,000, the lender would give the borrower $65,000 to $70,000. This low LTV (loan-to-value) ratio gives the lender added security in the event that the borrower cannot pay and the lender has to foreclose on the property.

Commercial hard money lender programs are similar to traditional hard money loans in terms of the LTV requirements and interest rates. A commercial hard money lender is typically a strong financial institution with the deposits and abilities to make discretionary decisions on loans that are non-conforming. These borrowers do not conform to the standards of Fannie Mae, Freddie Mac, or other residential conforming credit guidelines. Since it’s a commercial property in question, the loan does not generally conform to a standard commercial loan guideline either.

Traditional commercial hard money loans are very high risk and have a higher than average default rate. Just like in a normal commercial loan, when a property owner defaults on a commercial hard money loan, he or she can potentially lose the property to foreclosure.

For more information on hard money lending, please visit http://www.pitbullmortgageschool.com.

Author: Joseph Devine
Article Source: EzineArticles.com
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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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