There are three important things to understand about Hard Money Loans
If you are not able to obtain financing in the prime marketplace where the best loans are offered, you may have more luck with Hard Money Lenders who will have fewer restrictions.
Hard Money or Private Money Lenders are primarily interested in equity, property condition and property use. They will be less concerned with your credit score and are flexible with ways to document your income and employment history.
Hard Money Lenders allow lower credit quality borrowers to obtain financing in exchange for more equity in the property and a higher return on their investment. The interest rates and fees on these loans are usually more than twice of what is offered in the prime mortgage market. It's been my experience that they will lend when others will not and close quickly, but there is a price to pay.
When explaining the basics of Hard Money Lending, I like to focus on three areas:
1. Rates and Fees – as mentioned above, the loan terms on hard money loans are not nearly as attractive as those offered in the prime marketplace. It is all about risk and return. Even with the increased equity requirement, the lower credit quality borrower has a greater risk of defaulting on the loan. Hard money lenders will generally have more delinquencies and foreclosures than will prime lenders. For this added risk, they will collect a higher interest rate and more origination or upfront fees. It is not uncommon to see hard money loan rates between 8-12% and origination points from 2-4% of the loan amount.
2. Loan Term – these are short term loans, usually 1-2 years. They are considered bridge loans for the purpose of solving short term problems. All hard money lenders will want you to have a solid exit plan for getting out of the loan.
3. Qualifying – the hard money lender's primary focus is equity which means the property will need to have a final loan-to-value of 65-70%. If you have the 30-35% equity, then the credit and income qualifying guidelines will be flexible. These lenders will allow previous credit issues such as late payments, bankruptcies, collections, etc. and provide alternative options to document income.
If you are having trouble qualifying, but have a large down payment or equity in an existing property, hard money lenders can usually offer you a quick and easy solution.
We offer hard money real estate loans. Are you looking for this type of alternative financing?
I hope this article is useful. Please comment below, we would really like your feedback.
Posted by: Brian Bush
Brian and his team have been funding real estate loans for over 23 years.
Since 1991, they have funded over 1 Billion Dollars in loans.
You can reach Brian at 800-607-1941 x220 or bbush@slglends.com .
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