For those who have never obtained a hard money loan, there are typically a lot of questions. Here are some of the most commons questions and answers about private and hard money loans:
1. What exactly IS a hard money and or private money loan? – A hard money or private money loan is a non-bank loan. Whether the source of the loan is a private individual, a fund, or an insurance company, a hard money or private money loan is any loan that comes from a non-bank source. Interest rates charged are typically higher than a bank loan, and loan terms are much shorter. One can expect to pay between 7% to 18% interest, and the loan term offered is between 90 days to 2 years.
2. Do some hard money lenders offer longer loan terms such as a 15, 20, or 30 year mortgage? -Typically a hard money / private money lender will provide a loan for a term of 90 days up to 5 years. Most hard money loans are made on a short-term basis. It is very rare to find a hard money or private money lender that will offer a loan term for longer than 5 years, however there are some exceptions.
3. Will a hard money lender give me 100% of the purchase price like the old days of hard money lending? – Before 2007, it was common to find hard money loans that would give you 100% of the purchase price of a piece of real estate. Since the real estate crash however, most hard money lenders will only give you a loan for a percentage of the purchase price. And these days, more emphasis is placed on the borrower’s ability to bring in a significant down payment. With most hard money loans, be prepared to bring in between 10% to as high as 50% on some real estate.
4. What if I have a bankruptcy, short sale, or a foreclosure on my credit? Can I still get a hard money loan? – Although there are some hard money lenders that will not make a loan to you under these credit-based circumstances, there are many that are still willing to make you a loan even if you have these types of marks on your credit report.
5. What kind of collateral can be used for a hard money loan? – Although most hard money lenders only use real property as collateral (real estate), there are some hard money lenders who will use jewelry, recreational vehicles, and other types of collateral to make a loan. However, it is difficult to find hard money and private money lenders that will accept such collateral. Most hard money lenders want to use real estate as the collateral for the loan.
What are some other questions you have regarding hard money loans?