Hard Money Lender

Most hard money mortgages are usually made by private individuals rather than commercial banks or other financial institutions. They differ from regular mortgages because the lenders typically are interested only in the true market value of the property, rather than your credit worthiness and ability to pay. The lender wants assurance that if you default on the loan, that he will be able to sell the secured property and walk away with no loss. These loans are more common in instances where a buyer wants to purchase a fixer-upper but has difficulty getting traditional financing because of the condition of the property. Rather than request a formal appraisal, a hard money lender will base the loan amount on the after repair value (ARV) of the property.

As an example, let’s say you want to buy a home for $100,000 but it requires $30,000 to put it in good, livable condition. The lender will typically loan you 65% of today’s market value of the property as if the repairs had been made. Therefore, in order to get a $130,000 loan, his assessment of that value would have to be at least $200,000. Otherwise, the buyer would have to come up with the difference between 65% of the ARV and the amount needed to complete the deal. Note that the ARV may be substantially less than the appraised value since the hard money lender is basing the ARV on what he could reasonably recover in a quick sale if the borrower defaults.

Getting a hard money loan

Hard money loans are usually easier and faster to get because you don’t have to go through the normal process associated with a traditional lender. Depending on the lender, this may take as little as a week or even a few days. An appraisal and credit report are normally not needed since the central focus is on the loan to value ratio. This allows buyers with low credit scores and low incomes to obtain financing that would ordinarily not be available to them.

There is a price to be paid for these advantages. Interest rates typically fall in the 12 to 20 percent range, which is far above what would be paid for 30-year fixed mortgage. In addition, loan origination fees and points may be significantly higher due to the additional risk assumed by the lender. Because a bulletproof security interest is critical to the lender, most will insist that they hold the first lien on the property.

Loan characteristics

Hard money loans are similar to bridge loans from a cost and risk standpoint. However, hard money is more often associated with distressed situations where the borrower has no other reasonable financing options. Bridge loans are often used to finance investment properties in transition that have not yet reached a stage where they qualify for normal financing.

Like bridge loans, hard money loans are usually short-term, though there is no restriction on length of term. Once the sale has been closed, and any renovations have been completed, most qualified purchasers will seek traditional financing to pay off the hard money loan. If they can’t qualify for refinancing right away due to poor credit or insufficient income, they can take actions to try and improve their financial situation in order to qualify at some point in the future. The first step is to make sure that the hard money loan is paid on time every month, and early if possible.

Before signing a hard money loan, consultation with a real estate attorney is highly advisable. This is because defaulting on such a loan does not offer you the same type of legal protections that you enjoy with a traditional mortgage. Depending on the terms of the loan, a single late payment could force you to lose the property without the benefit of a court judgment. Caution should be taken to make sure you understand and agree to all the terms and conditions of the loan.

Hard Money Loan Companies

BlueWater Funding, LLC
Bethesda, Maryland
www.bluewaterfundingllc.com

CT Capital
Fort Lauderdale, Florida
www.ctcapitallending.com

Delta 8 Capital
Colleyville, Texas
www.delta8capital.com

EDC Capital Partners
Virginia Beach, Virginia
www.equitydevelopmentcorp.com

Gala Resources LLC
New York, New York
www.GalaResources.com

LoanSum, LLC
St Louis, Missouri
www.loansum.com

Northwestern Financial
Wixom, Michigan
www.nwfhl.com

Peachstone Capital, Inc.
Atlanta, Georgia
www.AtlantaHardMoneyLoans.com

Pro Source Loans
Beachwood, Ohio
www.prosourceloans.com

Niche Specialty Lending
Scottsdale, Arizona
www.nichespecialtylending.net

California Hard Money
La Mesa, California
www.californiahardmoney.biz

Capital Trust
Boston, Massachusetts
www.ecapitaltrust.com

Investors Commercial Capital, LLC
Voorhees, New Jersey
www.icclends.com

South Street Funding, Inc.
Davidson, North Carolina
www.southstreetfunding.com

Sunrise Financial
New Haven, Connecticut
www.sunrisefg.com

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