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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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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