Most folks involved in any type of investing would have heard the term ‘Hard Money Loans.’ Yet many have never taken the time to investigate what exactly is a Hard Money Loan or a Hard Money Lender. Today when you would have finished with this article you would have removed yourself from the ranks of those who claim to not know about Hard Money Loans.
1) We will look at what is a Hard Money Loan
2) We will look at how a Hard Money Loan works
3) The types of properties that it is appropiate for.
4) The lender’s requirements of the borrower.
You will not become a certified Hard Money Expert for reading this, but you can never go back to not knowing about Hard Money Loans after reading this
What is a Hard Money Loan?
A hard money loan is a type of loan secured by real property. They are usually funded by investors or groups of them and are usually short term loans that cover a period of 6 months to three years. The loan requires monthly paymentrs of interest or interest plus principal with a bollon payment at the end of the loan.
Hard money lenders are primarily concerned with the property value rather than with the credit of the borrower. Although their credit is of some value the property is the majoe focus of the loan for its collateral. Also they are very concerned with the experience of the borrower to accomplish what the money is being borrowed for. That means he needs to convince them with his business plan.
These loans can be divided into two parts: the purchase of real estate and the repair of it. The purchase is relatively straightforward with the lender using the following terms to size up the loan. The first is the ARV or after repair value, next the LTV, known as loan to value and LTC loan to cost. Hard money lenders will not lend to residential owners but do quite a lot of business in the single family houses market.
Once you have closed on the loan, it is expected that all the basic expenses will be taken care of by you. Once you have taken care of this initial expenditure you can then request a ‘draw down’ or reimbursement on the loan. This translates to your having enough funds to take care of all initial expenditure before your hard money loan kicks in. What that means is that as a house flipper you need to have some cash of your own before you can have access to the loan funds.
Hard money loans can be described as business loans. They are not for the homeowner who can get a loan from a bank or any regular financial institution. These loans are best for:
They can be used as Bridging Loans
Land purchase and Construction Loans
Fix and Flips
While hard money loans are considered as being among the most expensive they are among the quickest to obtain. It is mostly about the real estate and not about the borrower's credit.
Do people still approach hard money lenders to fund non investment property? They certainly do. When you are new in the town or state and have no real references and you are offered a steal of a deal, a hard money lender might appear as quite a blessing. All of the questioning that conventional lenders ask is no more. You get an answer from them in the same week, not 30 or 45 days; a lot of terms can be negotiated and if you are assured of steady income then within the time period to pay off the loan you can have it replaced with another from a conventional lender. It can be simply seen as a Bridge Loan.
To folks with several signs on their credit, such as a foreclosure, bankruptcy or any of the things that most regular lenders look at, a hard money lender will not be overly concerned with. Do you have the necessary financials to pay for the initial expenditure on the property? Can the lender be assured that your plan is a sound one and the property will be rehabed and sold within the time period agreed upon? Can he be convinced that you have the experience to complete the project as agrteed upon? If you can be convincing with all these answers then you are assured of a Hard Money Loan.
It would be unfair if we did not look at the other side of hard money lending. The lender first will be unlikely to lend to someone who has no equity in the investment property. AS they say "you must have some skin in the game." A lender once remarked that it ought to be just as hard for you to walk away and leave his money to burn as it is for you to leave yours.
They are not overly interested in taking your property from you, they just want their monies back with some interest to show. For them meony is just a vehicle that is being utilized.