Hard Money Loans

Investing in real estate is one good way to make a living for you and your family. However, to earn big profits, you also have to spend a considerable amount of money in this business. This is why you have to secure a good source of funds if you want to become a real estate investor.

Banks, credit unions, and mortgage companies can provide you the funds you need. However, if you have a bad credit history, it would be difficult for you to obtain a loan from these traditional lenders. Fortunately, hard money lenders provide alternative financing for those who can’t secure a bank loan.

The loans provided by these non-traditional lenders are called hard money loans. Such loans are perfect for buying investment properties because they are asset-based. When it comes to hard money loans, lenders verify a loan’s eligibility by assessing the value of the collateralized property after it is repaired. Basically, it means that lenders of hard money do not care about a borrower’s credit history. As long as the investment property has high after repair value, or ARV, they will approve the loan application.

Hard money lenders are usually private individuals who have a huge amount of cash on hand. They can also be small lending institutions that are willing to lend money for investment purposes. Most lenders of hard money have their own set of criteria when approving or rejecting a loan application. While some of them may not ask for documentation or credit checks, there are some who require their borrowers to submit simple credentials such as W-2s and tax returns.

The terms for hard money loans vary from one lender to another. Usually, these lenders offer a loan to value (LTV) ratio of 60% to 70% of the after repair value of a property and the payment period is mostly from three months to one year. Hard money also has higher interest rates compared to traditional loans, with rates ranging from 12% to 18%. In addition, some lenders may ask for higher origination fees, which are used to process a loan application, as a way of protecting their interest.

Despite these minor setbacks, it is still better for a real estate investor to obtain hard money loans.  It is because he can secure funds in a flash since most lenders of hard money can approve a loan application in just a matter of days. In addition an investor doesn’t have to deal with a handful of people because he doesn’t have to negotiate with a processing panel.

Meanwhile, if you want to learn more about the benefits of seeking the assistance of hard money lenders for your investing business, visit www.REIWired.com, where you can browse quality articles and videos on real estate investing and hard money lending.

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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