Real Estate Investing: Hard Money Loans

People sometimes need more money than they had anticipated while dealing in real estate and that is when hard money lenders are needed the most. Hard moneylenders are private moneylenders who lend money for short terms with low loan to values and strict repayment schedules.

This type of a loan is called hard money loan because of its strict terms, higher than market interest rates and they usually take between 3 to 10 points as upfront fees. Hard moneylenders give investors access to asset-based capital, where the loan is secured by adequate collateral. The interest rate varies between 14{b2ed3b54c6cb9345f76fcfc3de822373c963a65b7650c57825784f50324f921f} to 18{b2ed3b54c6cb9345f76fcfc3de822373c963a65b7650c57825784f50324f921f} interest only annually and the loan term is usually 6 to 12 months.

Criterion to Secure Hard Money Loans:

The lenders look at the collateral, they need proofs, such as, tax returns and bank statements, and they make appraisals and inspect the property before granting the loan. The hard money lenders will study the investment intent, the exit strategy adopted, the property information provided such as the kind of property commercial or residential, and check the credit profile of the borrower, his financial strengths etc. the fee they charge depends on the risk factor and the nature of the deal. They will also study how the investor plans to use the borrowed money, so the investor has to present them with a good business plan in order to convince them they are low risk investments.

The terms and conditions vary from lender to lender and it is essential for an investor to find and maintain good relationship with a reputed hard moneylender in his area. Hard money loans are useful while purchasing or procuring a property or if a buyer lacks finances but has a good sizeable fixed income, then the seller would like to recommend a hard moneylender of repute to finance the buyer.

Hard moneylenders can be choosy as to which area of real estate investing such as purchasing a house, rehabbing a house, lease purchase options etc. they will lend money to. Investors have to understand the importance of maintaining good relationship with the hard moneylenders, as hard money loans will be essential for investing in real estate. It would be too hard to lose a great deal because you lacked the finances, with hard moneylender’s support that can never happen to an earnest investor. Some hard moneylenders give a pre-qualification letter that will help close deals faster as your assuring the other party that you can finance the deal.

Investors go for hard money loans as they are approved faster, making it possible to close deals faster too, unlike a conventional bank loan. The investor has to make sure to see how strict the pre-payment penalties are.

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