Understanding Hard Money Loans and Lenders
Hard money loans are temporary, privately funded real estate loans at much higher interest rates . These are not designed for permanent financing . The upfront fees and interest rates for hard money loans are not cheap , so should be paid off quickly, as soon as your investment property is completed or flipped . Interest rates on hard money loans are usually around 12 and 17% , and there is also usually between 2.5 and 4.5 points added to the loan .
Buying real estate without upfront cash is challenging , but it is possible if you can prove that the value of the real estate is more than the hard money loan amount .
When should hard money financing be used ?
Hard money financing are beneficial for short term real estate investments . They usually will be only approved if the property is worth substantially more than the amount financed . If the investor plans to keep the investment as a long term investment, the Hard Money financed should only be used as a bridge loan, to provide immediate ownership until traditional financing can be obtained .
At rare times, hard money can be used by homeowners in distress who need to do something to prevent foreclosure. Because hard money brokers grand loans based on the value of the property, and not on the credit worthiness of the borrower, they will lend to people with poor, or bad credit, if the property has a substantial amount of equity. Hard money loans for distressed borrowers is usually just a bandaid for a more serious financial problem . Hard money lenders will typically foreclose on properties with very little mercy .
What makes a hard money lender good ?
When selecting a hard money lender you need to consider the time it is going to take to obtain the money , the cost of obtain the loan, the interest rate, and repayment terms . You should also take into consideration how liquid the loan will be, how long it will take to get the cash when you find a great deal . If the hard money lender takes too long to get the money to you, then you’ll miss out on the deal, and there is no point of getting a hard money loan at all .
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