Hard Money Loans: An Attractive Option For Some Investors
Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.
Hard money loans are considered high risk and you are dealing with investors who want a high return on their money. That means your interest rates will be very high and a hard money loan will be a very expensive way to borrow money.
Hard money lenders, unlike the big institutional lenders, charge high interest rates usually above the market rates as they are experienced investors looking for good returns. These hard money lenders, usually charge 5 to 10 percentage points higher interest rates than the private money or conventional lenders. Hard money lenders also charge 'points' (or pre-paid interest) on the loans, which makes them a rather costly option when borrowing money.
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.
Where should you look to find hard money lenders? The first place is in the "money to lend" pages of your local newspaper. The second place is at a meeting of your local real estate investing association. Local hard money lenders are often attending to solicit new business. Eventually, do not forget to check on the internet: just search for "hard money loans" or "hard money lenders."
There are several things to know when considering hard money lenders for your real estate transactions. First are some cons to hard money loans, the largest of which is that hard money will be leant to you at a much higher rate than prevalent from other lenders, typically 5-10% higher. They may also charge 'points' on the loan to ensure that they make a good return on it. There are pros to hard money lending as well, typically these types of loan are much easier to obtain and rely less on creditworthiness and more on the security of the loan, so hard money is much more flexible.
Published May 18th, 2007
Filed in Business, Career, Real Estate
