We are often asked: What is Hard Money? For the real estate investor Hard Money loans are a virtual goldmine. If you are able to secure a contract on a handyman special that is undervalued you may be able to get a loan for 100% of the purchase price and the fix-up costs.Hard money lenders are a great resource for real estate investors. Especially for the beginner investor with limited resources of cash and credit. Having a hard money lender on your team you can confidently go out and make offers on properties, close on the house and have repair funds to do the job!
Hard money lenders are private individuals with money available for investment purposes. These individuals could have deep pockets or other resources of funds. They lend money based on their own personal criteria on a short-term basis, to real estate investors for acquisition and repairing of distressed properties.
The term "hard money" is a bit confusing. When you first hear this term, one might think that the money is difficult or hard to obtain. But, quite the opposite, it is the easiest money to procure. Just like in other areas of business the terms "hard" and "soft" come into play. Hard money has strict terms and repayment schedule. Soft money has easier terms a flexible repayment schedule.
The terms for hard money loans generally have very low loan to value (LTV9S), higher than market interest rates, points and prepayment penalty. The typical lender will provide a loan for 50-75% of the after repaired value (ARV) of a house. The interest rate could be 12-18% for 6 months to 2 years. They may charge 2-5 points of the loan for financing fees. These terms vary from lender to lender. Some lenders charge interest only and others will amortize the loan. Some lend repair money on a draw schedule. Some will lend closing cost. All of these terms will vary form lender to lender and will depend on the experience level o fan investor as well as the length of the investor9s relationship with the lender. When finding a hard money lender, you will ultimately need to determine their terms and how they might fit into your plans as a wholesale real estate investor.
Each hard money lender has their own criteria and it varies form lender to lender. Each could have their own preferences with regard to areas and types of properties in which they will and will not lend.
Some of the lenders will check your credit and other will not. Some will require an appraisal, others have their own in house appraiser. An inspection fee for each draw from the repair escrow is often charged.
Hard money lenders are concerned primarily with the value of the property. Their primary concern is that if the investor defaults they will have an asset form which they can recover their original investment and more. They have not desire to experience the hassle and expense of taking a property back then to finish the rehab and resell the property. They want to be secure in the loan in case that scenario does happen.
If you are pursuing properties, you will need a prequalification letter to submit with your offers and you can obtain this from a hard money lender. This is a good way to start establishing a relationship with a lender. Your offers will also carry more weight when submitted with that letter.
Hard money lenders are private people lending their own funds. They are not institutional investors who have a standard set of guidelines dictated y the federal reserves. Hard money lenders can be flexible or can be tough.
Come find out all about Hard Money and how it will open doors for you.
Presented by Mark Fedderson of Pacific Union FundingRead more »
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