Hard Money Loans

If you’re in dire need of cash as soon as possible, a hard money lender might just be your knight in shining armor. Also known as private lenders, they are lenders that grant hard money loans.

To be able to understand what private lenders do, it is better to first define what a hard money loan is. It is a type of loan through which a borrower receives money secured by the value of a real estate. This type of loan is mostly given to real estate investors and realtors. Investors use this loan to get money to finance their real estate investments.

Hard money loans are perfect for investors who are just entering real estate investing. Investors who do not have enough money and have bad credit histories can benefit greatly from hard money loans. Private lenders can grant a hard money loan without considering a borrower’s credit score or income. The property’s value will be the deciding factor whether or not a borrower will be approved for a loan. If the property does not have any resale potential, then no loan will be granted.

It won’t be hard for an investor to negotiate with a hard money lender because most of them are investors too. A private lender can understand your needs better which is why the negotiation will be more flexible unlike with traditional lenders. Banks and traditional lending institutions do not deal with hard money loans since the risks are high.

However, even if the hard money loans are known to be fast and easy money, the interest rates are not the same with banks. Since private lenders loan their own money, risks are higher and so as the interest rate. The rates vary from lender to lender so you have to find the right lender who can provide your needs.

You can find hard money lenders anywhere, provided you know where to look. You can ask referrals from your neighbors, real estate agencies, and mortgage companies. The internet is another way for you to find a lender. Take time in finding the right lender since the terms vary from lender to lender.

Now that you know something about hard money loans and lenders, you can now make smart decisions whether to ask the help of a private lender or not. You can always visit REIwired.com to get more tips and information about other forms of real estate investing.

photo credit: stevendamron

I interview real estate investors for my website and recently I came across a number of investors who teach about using private money to purchase real estate. However, if you would have asked me one (1) year ago about the difference between private money and hard money I would not have been able to tell you anything. The difference however is very critical.

Broken down into its simplest form the main difference is with private money you decide the terms of use and with hard money the lender decides the terms of use. Now this very basic difference has a lot of impact on your real estate investing business. One type of money is not necessarily better than the other but you should in fact no the difference.

Where does the money come from?

In both scenarios you are going to receive the money from an outside investor. There are several ways to discover these investors from holding luncheons to running ads in the local paper. The investors know that real estate will offer a higher return than the market so they are inclined to give you some dollar amount in exchange for a percentage of return. Read the rest of this entry »