Hard-money loans are mortgage loans that are offered by private individuals or companies rather than financial institutions, such as banks or traditional lending institutions. These entities are known as "hard-money lenders." Borrowers who either do not qualify for mortgages through financial institutions, or who do not want to put up with possibly lengthy waits for loans to close, often go to hard-money lenders.
These borrowers can sometimes have bad credit, insufficient income, or other factors that are considered undesirable to financial institutions. Property conditions may play a role as well, in why financial institutions categorize these borrowers as high risk. But other times, borrowers simply don’t wish to become embroiled in the seemingly never-ending red tape that traditional lending institutions require. A hard-money loan may also be an attractive choice for borrowers who are behind on their mortgage payments, or in danger of foreclosure. With a hard-money loan, a private individual (or individuals) acts as the lender and extends a loan to the borrower. The hard-money lender can be a person, a trust, a real estate investment group, or any other private group.
Property Criteria in a Hard Money Loan A leading reason someone may investigate hard money loans may concern the current state of their property. If a property needs fixing up or does not produce cash flow, you usually can’t get a bank loan. But if you’re after a hard money loan, Consumer Counseling Centers can probably get you the money you need to fix up the property or get it to a state of making money.
If you’re looking to buy commercial property with no tenants, you’ll find that banks will typically not want anything to do with it. A hard money loan can help act as a financing bridge. The hard money can buy you time to get tenants and have them on-site for a year or more. At the end of that time, you can refinance at a lower rate with a bank and pay off the hard money loan in the process. Many borrowers decide that the speed which hard money loans can provide more than makes up for the increased interest rates.
Frequently Asked Questions How fast can my private money loan close? Hard Money Lenders can give a commitment in just 24 hours, and can close loans from $1 million to $100 million or more in just two weeks. Sometimes, in certain circumstances, in just days. The key factor in getting a hard money loan is the appraised value of the property to be considered as collateral.
What about an appraisal? They’re sometimes necessary. Many times, evidence of value is a crucial part of the private money loan process. But sometimes a good set of comps can be just as useful.
Why is it called "hard money"? There’s no right answer. Some think it's because the money is used for difficult loans. Others believe that it’s because traditionally it has been "real money" in the sense that it isn’t borrowed. It comes down to the fact that no one really knows. Loan Criteria
Up to 65% LTV. TERM: Flexible loan term up to several years or more
PREPAYMENT: Loans may be repaid at any time without penalty.
USE OF PROCEEDS: Loans are made for business purposes only.
LOAN TO VALUE: Loan amounts can be up to 50-65% of the disposition value of the collateral, based on the estimated cash sale price given a 90-120 day marketing time. If the loan is used for renovation or construction, the loan amount can be based on the improved value, and would be disbursed in stages.
RATES: Rates vary from 9-18% per annum, interest only, depending upon collateral and loan structure. Internationally, rates vary from 12-21%, depending on country.
EQUITY: In lieu of equity participation, a fee of 1-4% (U.S. only) of the loan amount may be included in the loan.
LOAN SIZE: From $1 Million to $100+ Million nationally. Must be at least $5 Million for international loans.
COLLATERAL: Real estate and other fixed or liquid assets
So how do I get a private money loan with Hard Money Lenders?
You run the concept by us first. Call and discuss the loan with us, e-mail a summary, or use our online loan submission form. If your project concept is viable, you’re on your way.
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