Hard Money Loans - Real Estate Funding Model
Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.
A hard money loan will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. That means it is generally amongst the most expensive money you can 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.
So, what is a hard money loan to be used for? First you must understand that they are often for about 65-70% of the ARV (after repair value) of the property. This means you may receive 100% of the purchase price, 100% of your rehab costs, and even have some or all of your closing costs rolled into the loan.
A hard money loan is extremely beneficial because you are not qualified based on your credit score or character, but hard money lenders qualify you based on the collateral in the loan. You might be able to get better rates elsewhere, but this offer offers flexibility to those whose credit history or loan serviceability, or even time schedule can't allow for service from a conventional lender.
Hard money lenders could be found in the "money to lend" section of your local newspaper most often. Next would be at a gathering of your local housing investing association. Local hard money lenders will attend every now and then to solicit new business. Also, you can find them on the net by searching for keywords like "hard money lender" or "hand money loans".
Here's a layman's guide to borrowing hard money loans. Third-party lenders who charge interest rates higher than the prevalent market rates for lending are called hard money lenders. The interest rates charged by them are typically 5-10 percentage points higher than the conventional lenders. They are beneficial because they allow you to obtain the necessary cash flow to finance renovation costs which may lie in your future. They are also notorious for charging "points" on a loan which is essentially a pre-paid interest on loan. They will often attend to solicit new business. Finally, don't forget to check online - just search for "hard money lending".
Published May 18th, 2007
Filed in Business, Career, Real Estate
