Why Use A Hard Money Lender

 Why use a hard money lender

For those who are not familiar, a hard money loan is simply a short-term loan funded by private investors, as opposed to conventional lenders, such as banks or credit unions. These types of loans are best used when an investor is putting money into a property on which a bank typically will not lend.  The debt is typically secured by the property and a personal guaranty. Furthermore, many Hard Money Lenders may be more flexible in their rates.  A number of Hard Money lenders are also aggregators who are managing portfolios of other investors.

If you know you can buy a property and turn it quickly at profit from your work, and you either can’t get or do not have the time to wait for a standard mortgage, a Hard Money Lender may be the way to go. The amount of money most Lenders are willing to loan is determined by the ratio of loan amount divided by the value of property,  known as the loan to value (LTV) ratio. Many Hard Money Lenders will lend up to 65 – 75% of the value of the property.  Different Hard Money lenders will use the After Repair Value (ARV) to determine the value of the loan. The ARV is the appraised value of the home once the repairs are complete. These funds loaned are normally available within days (typically one to two weeks, as opposed to a traditional 30+ days), but they are not cheap: typically with interest rates around 10-15% plus points ranging anywhere from 2-4% of the total amount loaned.  

However, with local networking you may find private lenders willing to charge less. Local real estate agents and real estate investor groups are a good source for names. Reach out to a few lenders, discuss your needs, and develop a relationship so that you can fund projects quickly and easily when the time comes. Finding a quality Hard Money Lender and establishing a good relationship with this person (or group of people) will be extremely beneficial to all involved.

As discussed earlier, hard money lenders are primarily concerned with the amount of equity the borrower has invested in the property that will be used as collateral. Therefore, the borrower must be able to present a Hard Money Lender with a reasonable plan for the property, detailing how they intend to ultimately pay off the loan. If anything goes wrong and you can’t repay, hard money lenders plan to get their money back by taking the collateral and selling it and coming after your personal assets.

Hard money loans make the most sense for short term loans. Fix-and-flip investors are the most common hard money users: they own a property just long enough to increase the value, then sell the property and repay the loan, often within a year or so. They offer an alternative to traditional bank loans and have a speedy, flexible aspect about them that appeal to real estate investors, wholesalers, and rehabbers.

 

http://retipster.com/hard-money-101-everything-need-know-getting-started-hard-money-loans/

https://www.thebalance.com/hard-money-basics-315413

 http://www.privatemoneylendingguide.com/borrowers/articles/hard-moneyquestions-and-answers-faq/hard-money-costs

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