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 funded very quickly at the speed of light. It is known especially among real estate investors as asset-based loans. The collateral for the loan becomes the property. They are far from conventional lending, as the underwriting guidelines that private money goes through are very different than your local banks.

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

Based on their own lending criteria, HMLs lend money in the short term, 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: bridging, refinancing, development, acquisition, rehabilitation, etc. Since hard money is more expensive than traditional sources (14% or more interest rate and 2 to 10 points or more in origination fees), borrowers generally gain financially by using hard money, so the high interest or points are usually offset by financial gain. The cost of the loan is not an issue when they can make $150k and pay $30,000 to use their money, would you use it if you could make $150k and pay $30k to use it?

What kind of terms can you get with hard money loans?

These types of loans will 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 typically finance a loan of 50% LTV on the raw land and up to 50-70% LTV on the finished product, at an interest rate of 14% or more (depending on the area of ​​the country in which that you meet). and for a period of six months to three years. They will also charge between 2 and 10 points as an origination fee, which will be paid out of revenue. It can be interest only or amortized.

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

What makes private money a great funding source and option?

Your local banks, credit unions fill a definite 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 fill a need that local banks cannot meet due to government regulations, stricter underwriting guidelines, lower risk profiles, longer funding schedule, etc.

Top 10 reasons to consider when deciding on hard money loans

1. SUPER FAST SPEED

You can close in 5-14 days after getting all the necessary paperwork, banks can take up to 45-60 days.

2. DOCUMENTATION REQUIREMENTS ARE EXTREMELY LOW

It requires documentation, but not as much as traditional lenders, it finances only based on the value of the property and not on the creditworthiness of the borrower.

3. BAD CREDIT IS NOT A PROBLEM

Bankruptcy, foreclosure and a FICO score of less than 490-600 are not a problem. Traditional lenders almost always require an excellent credit history.

4. VERY FLEXIBLE

Flexibility with loan structuring…amazing! Terms, interest reserve, draw schedules, cash withdrawal, financing transfer, etc.

5. GAP/BRIDGE FINANCING

HMLs are typically highly experienced real estate lenders who understand that projects don’t always follow the given plan. If there is a funding gap and the loan and supporting documentation make sense, HMLs will typically fund. Whereas, IL guidelines are generally not flexible and reject gap loan applications if borrowers fall off schedule.

6. FOREIGN NATIONAL LOANS NO PROBLEM

Foreign citizens can get a loan with a hard money lender, but it will be difficult to get a loan with a traditional lender that has trouble lending to non-US citizens.

7. WILL PROVIDE IN HIGHER RISK OPERATIONS

Non-profit churches are not a problem with hard money lenders, but they are with traditional lenders who are concerned if they 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 personal guarantees are not necessary. Local banks always require personal guarantees.

9. FLEXIBLE LENDING TO SECURITIES (LTV)

They are more flexible than traditional lenders, as they will decide which Loan-to-Value (LTV) to accept based on their affinity with the project, cross guarantees, possible equity participation, etc. Traditional lenders will turn down loans ASAP if LTVs are too high.

10. SUBORDINATE LINKS

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

What should you expect with a hard money loan?

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

Each deal is case by case, unique; Terms vary and each deal structure can be different. Lenders’ criteria are adjusted based on the details 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 required
* All delinquent taxes, judgments, etc. and other links on the property will generally be removed from the revenue unless specifically excluded.
* Insurance will generally add the lender as a coinsurance
* Funding control is always established on construction, development and any budgeted loan * Borrower will pay all closing costs, fees, etc. out of income
* Many lenders require the property to be placed in a single asset LLC, to which the loan is made
* Borrower must be prepared to assign rents
* Interest, in most cases, at least in part will be reserved or prepaid
*Some HMLs require an upfront application fee, due diligence fee, and commitment fee. Make sure you understand these fees and how they will be used and whether they are refundable
* Almost all lenders require borrowers to have money in the deal. Additional collateral through cross-collateralization of other properties may be required to maintain acceptable LTV.

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