Hard Money and Bridge Loans For Real Estate
Although the hard moneylenders were largely affected when real estate industry crashed in the 80’s, recent credit crunch has brought more business to this sector. People who are in need of loans are turning towards hard money loans after the financing by traditional lenders and banks has come to a halt. The casualness and irresponsibility of these banks and lenders when giving out loans in the past has hit them hard and they are going through a severe liquidity crisis. With this serious drop in supply for finances, hard moneylenders are seen as a reasonable alternative. People and businesses are short of funds, and naturally they have to go for the best substitute available. A hard money loan comes as a last resort in such situations.
Characteristics of a hard money loan:
Hard money loan goes by the principles of mortgage; the distinguishing characteristics are the interest rate and the time consumed in approval. A loan application can take quite some time before getting through all the procedures and verification process that are part of a bank policy. Whereas hard money loans are issued normally by private lenders (though you can find many commercial hard money lenders as well) in relatively short time at higher interest rates and lower loan to value (LTV) ratio. The interest rate or loan to value ratio is not fixed and it keeps changing with the ups and down of real estate market. Hard money loans are often for short period of time (also known as bridge loans) that means the correct quick-sale valuation of the property is vital for the lenders.
Some tips for the borrowers and lenders:
As a borrower, you need some extra efforts to convince hard money lenders (these extra efforts are compensated by their fast approval time, once they are convinced), a hard money lender will believe you more if you are ready to put your cash into the deal as well. This is why they emphasize on low LTV ratio more than your previous credit score when compared to traditional lenders. Along with the advantage of their availability in even hard financial times, they are a much better option when you need quick finance. Being a lender, you should be extremely careful when determining the current value of property. Over estimation or wrong valuation can cause you serious loss in case of default. Also borrowers should try to reach hard moneylenders themselves, without bringing too many agents and brokers in between, as it will save them lots of upfront costs and expenses.
Author: William King
Article Source: EzineArticles.com
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Hard Money is Private Money Lending
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 percent 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 percent-15 percent- while the banks will set your loans interest rate to 7 percent- 10 percent, 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 percent 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 percent 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 percent interest rate on his money, that’s a big difference. Good luck to you all investors out there.
Author: Yanni A Raz
Article Source: EzineArticles.com
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Private Lending – Types of Hard Money Loans
Private lending is an alternative to conventional loans such as you would apply for at your local bank or Mortgage Company. They are also referred to as Hard Money loans. Private loans are short-term loans ranging from 3 months to 3 years. They have a quick approval time line and usually a 55% to 75% LTV (loan to value) rate. This is a great option for residential, commercial, construction, and land investment purchases that are expected to have a fast turn around.
There are a variety of Hard Money loans:
-Hard Money Acquisition Loans – This type of loan is used to acquire real estate using the loan proceeds.
-Mezzanine Financing and Loan – This is a loan subordinate to a Primary Lender. This is a debt instrument, which is paid back at the time of sale or refinance of the total capital stack. Mezzanine loans have flexible structure, including debt and equity mixes that can increase the borrowers leverage.
-Hard Money Acquisition and Development Loan – These loans are used to acquire and develop property with the intention of improving it. The loan proceeds are dispersed with interest only paid on the funds Distributed. The loan amount is determined by the overall LTV Expected following the improvements.
-Asset-Based Hard Money Loan – This can be used for any purpose. Collateral is put up for security. Collateral may be property, equipment, inventory, etc.
-Hard Money Bridge Loan – This is money that is used for only a short period of time until permanent financing is put in place. This is a perfect solution for a business opportunity or acquisition that needs a quick process for financing. Circumstances that may be considered are Buy-Outs; foreclosures; construction; hotel and motel; office complexes; commercial business opportunity; apartment buildings and even golf courses.
-Hard Money Construction Loan – This money is used for the construction of a building or other improvements of real property. The land or the improvements become the collateral for the loan. Some lenders will loan up to 100% of the cost of construction available depending on the determined value upon the completion of all improvements.
-Hard Money Credit Enhancement Loan – This loan is for a borrower who lacks the credit or capacity to acquire a conventional loan of sorts.
-Hard Money Raw Land Loan – This can be used for lots to large acreage. The LTV ratios are determined by the price it would be valued at a 90 day quick sale.
The key to Hard Money loans is the ability to do a quick turnaround in your sale of the property purchased, or speed in which you are able to acquire a more permanent long term financing.
Author: Ginese Wilmot
Article Source: EzineArticles.com
Provided by: Cellphone news
Hard Money Land Loans
There are various types of hard money land loans. They are classified based on the purpose of the loan. Some of these are commercial, construction, bridge, land acquisition, development and residential. The term hard money refers to the difficulty in acquiring such a loan.
Land is necessary for any construction or real estate development. Most conventional lenders such as banks, savings and loan association and pension funds are not interested in giving such loans. Developers therefore approach loans specialists who are able to find investors to make these difficult loans.
Hard money land loan lenders are, one such group of specialists who can find money for, short-term land development loans. They usually offer loans for a smaller percentage, of value than conventional lenders. Additionally, their loan terms are usually worse than conventional lenders.
Typically hard money land loan lenders will only loan liquidation values of the land parcel. These lending sources have higher interest rates and shorter loan terms. Most hard money land loan lenders who make raw land loans place them with private money sources. They will make loan decisions based on asset value rather than the borrowers? credentials. This makes these loans easier to get but harder to service.
Since raw land deals are often time sensitive, the hard money land loan lenders, are used to making fast underwriting decisions. They quickly qualify the borrowers and ensure that, they have the capital required and then provide their decisions within one or two business days.
Borrowers approaching hard money land loan lenders are required to follow strict guidelines set by the lenders. Some lenders will not finance a purchase of, foreclosed properties or properties encumbered by liens or judgments. Borrowers typically use brokers, to navigate through the list of restrictions in order to find, the best hard money land loan lender. Hard money land loan lenders are frequently used, when the risk is higher, but there is adequate collateral to cover these higher risks.
Author: Thomas Morva
Article Source: EzineArticles.com
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