More about Hard Money Lenders

Hard money lenders play an important role in providing private money loans to real estate investors. Who are hard money lenders? Where can you find them? How are they different from banks and other lenders?

About Hard money lenders

In real estate investment, money is often referred to as "soft" and "hard". "Soft" money is easy to qualify for and has flexible terms and conditions. These are often provided by banks and conventional lenders.

"Hard" money on the other hand is restrictive and will carry high interest rates and stringent terms and conditions. "Restrictive" does not refer to difficulty in acquiring the loan. In fact, hard money is easily available, but the rules and terms are often stringent. Why? Private money loans (or hard money) are provided by private individuals, just like you and me. Since they do not belong to any lending institution or bank, they privately ensure security of their loans. Wouldn’t you do the same if you lent money to someone?

Terms and conditions

As the lenders do not belong to any specific financial or lending institution, their terms vary from lender to lender.

Common characteristics of are:

• High interest rates: Although the interest rates may vary from lender to lender, they are higher than the interest rates of traditional banks and lenders. Their interest rate can typically be found in the bracket of 12-20% per annul.
• Period of loan: The loan period is often short, lasting only 6 months to a few years.
• Charges for using hard money: They charge an additional fee for using their money. This fee could vary between 2 and 10 points.
• Availability of loan: Typically, foreclosed properties are sold on cash on sale basis. Therefore, timely availability of finance plays an important role in acquiring the property. Else, some other taker will buy the property while you arrange for the finance. Most of them can process the loan in as little time as a week; the banks time frame is around 30-45 days for processing. Sometimes even process the loan within 24-48 hours. For, they understand the importance of timely availability of finance.
• Purchase price + repairs cost: They provide almost 70-75% of the ARV (after repair value) of the foreclosed property. As foreclosures are mostly sold at deep discounts ranging anywhere from 10-50%, the loan amount includes the repairs costs. Therefore, personal out-of-pocket investment is either nil or nominal.

In this way, the hard money lender is also secure. In case of payment default, he will still make a handsome profit by selling the mortgaged property.

You can choose the best hard money lender based on the characteristics listed above.

Why hard money lenders?

Hard money lenders owe their popularity to the ability to finance without the need for a down payment or security. Of course, you will be paying a little more to use the "easy" money, but it is worth it. Moreover, timely availability of finance allows you to purchase a promising property before other prospective buyers.

If you intend to invest in foreclosures, fix and sell them, hard money lenders can indeed be your best friends.

The Author, Piter W Sherman has vast knowledge in Finance and loan. Here he presents an article on Private money lenders. He also writes in more similar topics like private money loans, Bridge Loan Texas.