Hard Money Loans - What's it all about?
Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Here's a layman's guide to borrowing through hard money loans. To start with, we will make you aware of the downsides of hard money. Later, we will introduce you to the upsides of hard money. So, keep reading......
One of the last resorts to fund your real estate deals should be a hard money loan because you are dealing with experienced investors who are on the lookout for good returns on their money which makes it amongst the most expensive money for you to borrow.
Hard money lenders are third party lenders, which means that they are not tied to big institutional lenders like banks and credit unions. Therefore they can charge interest rates that are above market value, which can be 5-10 points higher than regular lenders. Additionally hard money lenders charge points against the loan. "Points" are defined as prepaid interest against the loan. The additional points make it an even more expensive alternative when borrowing money.
Then, why use hard money loans?Well, hard money loans are normally around 65 to 70% of the ARV (after repair value) of the property. This is very important, as now you can get finance for all of the purchase price plus any rehab costs if your ARV is sufficiently higher - in other words, you can get into the deal with nothing down!
If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.
Hard money lenders are found in various places. Your local newspaper probably provides a "money to lend" classified category. Check there first. There is also probably a local real estate investing association. Local hard money lenders solicit new business at these meetings. Finally, run an internet search for "hard money lenders" or "hard money loans." You are sure to find hits.
There are several things to know when considering hard money lenders for your real estate transactions. First are some cons to hard money loans, the largest of which is that hard money will be leant to you at a much higher rate than prevalent from other lenders, typically 5-10% higher. They may also charge 'points' on the loan to ensure that they make a good return on it. There are pros to hard money lending as well, typically these types of loan are much easier to obtain and rely less on creditworthiness and more on the security of the loan, so hard money is much more flexible.
Published May 18th, 2007
Filed in Business, Career, Finance, Home Business, Real Estate
