Simply put, it is a short-term loan secured by real estate, sometimes called “private money” loan. It is usually funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The amount that hard money lenders are able to lend to a borrower is primarily based on the value of the subject property. This process is pretty simple and requires less documentation than conventional lenders.
Hard Money Loan consumers are people who need to close a transaction quickly.
They could be real estate investors, business professionals who want to build a project, or an individual who may face some kind of financial hardship or insufficient income history. They serve a broad range of borrowers and investors.
The primary reasons that set hard money lenders apart from bank lenders are speed of funding and fewer qualification requirements. The primary reasons that set hard money lenders apart from bank lenders are a speed of funding and fewer qualification requirements. Hard money lenders are sometimes called “asset-based lenders” because they primarily focus on the loan collateral, whereas banks require borrowers to have both good collateral and excellent creditworthiness.
Bank lenders pay close attention to the ability of a borrower to pay off the underlying loan using his/her income. Hard money lenders may find themselves in a position to foreclose on and “take back” the underlying property if it’s necessary to meet the loan requirements. In any case, responsible lenders have to make a borrower aware of risks so that they can make a conscious decision about following through with a loan.
A borrower can get a Hard Money Loan against a variety of property types, including single-family residential, multi-family residential, commercial, land, and industrial. But many hard money lenders can refuse to give loans against owner-occupied residential properties because there are additional rules and regulations.
Borrowers should note that hard money lenders may have expertise in a specific niche of a loan. You should ask upfront about which types of loans they can underwrite.
A borrower can greatly benefit from taking out a Hard Money Loan when he or she:
Hard Money Loans are ideal for the following cases and situations:
Hard Money Loans provide an opportunity for borrowers to generate substantial profit (or accumulate savings) quickly with the interest cost and origination fees being far less than anticipated gains. This opportunity outweighs the fact that private lenders typically charge higher interest rates than banks.
Private money lenders can provide the following advantages to those who are in financial distress:
In addition, private lenders put a premium on the existing assets or collateral but not on the borrower’s income and creditworthiness.
The interest rates and loan points charged may vary from lender to lender as well as region to region. Hard money lenders take on more risk than a conventional bank, so interest rates will be higher and could range from 10-15% depending on the lender and perceived risk of the loan. The loan points can range from 2-4% of the total amount loaned. Interest rates and points may vary greatly based on the loan-to-value ratio.
The amount that a hard money lender is able to lend is determined by the ratio of the loan amount divided by the value of the property. This is known as the loan-to-value (LTV). Many lenders may lend up to 65-75% of the current value of the property.
Some lenders also base the loan amount on the after-repair value (ARV), which is an estimated value of the property after a borrower has improved it. This type of loans involves greater risk because the amount of capital put in by a lender increases while the amount of capital invested by a borrower decreases. Consequently, this will cause a lender to charge higher interest rates.
Hard money lenders are primarily concerned with the amount of equity the borrower has invested in the property that will be used as collateral. Credit rating doesn’t carry as much weight in the decision. Another factor is that how the borrower is going to use the property, which must be reasonable and specify how they intend to pay off the loan. The plans could include improving the property for sale or long-term financing at a future date.
The easiest way to find a hard money lender is searching on the Internet by a phrase reputable hard money lender. The results shown will help you reach the professionals you’ve been looking for. Another way is attending your local real estate investor club. It is one of the many places hard money lenders visit to find potential customers.
Besides, you can ask other real estate investors for recommendations. Leverage your existing network to see who is most referred to. Once you have a list of potential lenders, start contacting them and do your due diligence to find the professional who can fund your deal.
Here at Renew Capital, we aim to help people create wealth for themselves and benefit from all opportunities the world has to offer. We keep our applicants’ best interests in mind when making an offer by being transparent throughout the process and advising them of potential risks. We work closely with our clients to ensure we are in alignment with their current needs and outcomes for the future.
Our loan terms range from six to twenty-four months (6 to 24) whereas our competitive interest rates start at 7.99%. And we are able to provide you with funding in as little as seven (7) days. You can find more information about our terms and rates here.
We can absolutely help you by considering other factors which are not related to your creditworthiness to provide you with a loan. More emphasis is placed on your assets vs. credit and liquidity. We look at the project itself and the potential future performance of that property.
We have a sister company, EIG, that can help our borrowers exit from our loans into more permanent financial arrangements
Contact us and let’s have a conversation about your needs and how we may help you. It’s a simple process and our team is standing by to share the opportunity that can impact your future.