Hard Money Loans - What's it all about?
Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Here's a layman's guide to borrowing through hard money loans. To start with, we will make you aware of the downsides of hard money. Later, we will introduce you to the upsides of hard money. So, keep reading......
One of the last resorts to fund your real estate deals should be a hard money loan because you are dealing with experienced investors who are on the lookout for good returns on their money which makes it amongst the most expensive money for you to borrow.
Hard money lenders are third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding alternative.
So, on the plus side, hard money loans are generally worth approximately 65-70% of the after repair value (ARV) of the property in question. This is beneficial because it allows you to obtain the necessary cash to finance renovation costs as well as the purchase price. This means you can potentially get into a deal with little to no money down if the after repair value to cost ratio is high enough.
If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.
So where do you find hard money lenders? The first place to look is in the "money to lend" section of your local newspaper. The second would be at a meeting of your local real estate investing association. Local hard money lenders will often attend to solicit new business. Finally, don't forget to check online - just search for "hard money lenders" or "hard money loans".
Hard money lenders provide hard money loans for financing real estate deals, although it is one of the most expensive options. They charge 5-10 percentage points higher than conventional money lenders, besides charging "points" which is a prepaid interest on loan. But because these loans are worth as high as after repair value of 65-70% of after repair value of the property, they are easy financing option for renovation. Hard money lending is also beneficial as it is based on security of the loan and provides more flexibility for people with poor credit. You can find such lenders in local newspapers, real estate associations, and on the internet.
Published May 18th, 2007
Filed in Business, Career, Real Estate
