Hard Money Loans: An Attractive Option For Some Investors
Who and what are hard money lenders? You've probably heard other talking about hard money and may have wondered just what it is and if it's relevant for you. Read on for a simple guide to hard money loans. The negative aspects will be introduced first with the positive apects being explained towards the end.
Hard money lenders are experienced investors and require a good return on their investment. This often causes hard money loans to become a last resort for people investing in real estate. The interest rates can be quite high, making hard money loans an expensive option for funding your real estate deals.
Hard money lenders are 3rd party lenders who charge interest rates higher than the current market rates. The interest rates charged by hard money lenders are typically 5-10 percentage points higher than the conventional lenders. Hard money lenders will also charge "points" on a loan which is essentially pre-paid interest on loan. All this makes, borrowing from hard money lenders an expensive alternative.
Then, why use hard money loans?Well, hard money loans are normally around 65 to 70% of the ARV (after repair value) of the property. This is very important, as now you can get finance for all of the purchase price plus any rehab costs if your ARV is sufficiently higher - in other words, you can get into the deal with nothing down!
Hard money lenders will lend based on loan security and not on the applicants character or trustworthiness nor do they lend based on their credit score. Hard money loans may not have the best rates but they are flexible and can be an alternative option for applicants with low credit, or those who don't want to waste time waiting for approval from banks and credit unions.
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
