What is Hard Money? People ask me this all the time. A private money loan and a hard money loan are used interchangeably to mean the same thing. A non-bank loan, back by individual or private investment group instead of a bank. A private loan is typically faster and can fund in one day up to 30 days, depending on the complexity of the deal. More flexibility often means higher interest rates, from 7% to 18%.
The qualifications are less harsh, some lenders don’t even require a basic loan application or credit report, they just want to inspect the property. While others want to see nearly as much documentation as a bank, but can still move faster than a bank could. Collateral is the most important to a non-bank lender. You must have a real estate asset to use as collateral for this type of loan.
The most important thing about a hard money loan…To find a lender you can trust. Private Money Utah is your trusted resource for private money and hard money loans in California, Utah, Colorado, Arizona, Oregon, Washington, Texas, Georgia, New York, New Jersey, Virginia, and Chicago, Illinois.
How Does a Hard Money Lender Value My Property?
When making a loan, a bank and a hard money lender both have different opinions when it comes to determining the value of the property. A hard money lender takes a very conservative approach to property value. For example, the appraised value means nothing to the hard money lender. Instead, a hard money lender will determine the value of the property as if they had to sell it in 30 to 90 days. This is sometimes called a “fire sale” value. If a borrower defaults on a hard money loan, hard money lenders will be able to sell the property quickly at the “fire sale value” to recover their investment. For this reason, a hard money loan is usually in the range of 60-80% of the purchase price. For example, if you are buying a property for $100,000, a hard money lender will give you between $60,000 to $80,000 max of the purchase price.
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There are two kinds of groups who have a growing need for hard money loans: commercial borrowers not eligible for bank loans, and real estate investors looking for foreclosures.
Hard money or private money to some is getting more popular by the minute as conventional (bank) financing for the real estate industry is still fairly scarce. As a wise borrower, there are rules to learn first before getting a hard money or private money loan.
When banks and brokers are not able to lend money to borrowers, the only option are the private money lenders. These days and with the economy, the demand is high particularly in places in GA, Chicago, NY, and NC.
What is a private money lender exactly? It’s the type of lender that doesn’t use conventional, bank standards in order to qualify a borrower for a loan. Evaluating credit history, income, and debt levels is typically of banks while the private hard money lenders will just provide a based on the value of the asset being used as collateral for the loan.
Real private hard money lenders are hard to find and their interest rates may not be as accommodating as compared to banks. But these lenders are the best option when the traditional financing from banks is not available or when a borrower is in need of a fast loan.
People use hard money and private money loans to accomplish a variety of goals and objectives. Most people who work in the private lending industry have some great success stories about their clients. Please share your own success story, or a story about one of your clients, below in the comments section.
I will tell 2 of our stories here and hope they inspire you….
Belinda – A first time real estate investor, Belinda was presented with an opportunity to purchase a small, mixed-use commercial building from a family friend. The building was fully rented and had good cash flow. The family friend had to sell the property quickly and was willing to sell it to Belinda far below market value. But only if she could come up with the cash in one week. Belinda’s credit has been hit, but she had enough cash reserves for a down payment. Because she was getting such a low purchase price on the building, we gave her a commercial hard money loan and she brought in the down payment. We were able to close within a week to satisfy the seller, and Belinda was able to get into a positive cash flow investment. Not too shabby for a success story eh? Read more..