What Is Hard Money
The
term Hard Money, as it is referred to in the real estate and
lending industry, has developed through the years to refer to
non-conventional or non-traditional real estate loans. Most hard
money loans are funded by private money sources or administered
funds that come from outside of the main stream source, such as
bank, S+L’s, Pension Funds, Insurance Company Funds, or
Securitization Pools that end up at Wall Street.
The soft
hard money loans of today are those loans usually funded at
higher interest rates (11% to 16%) with more total points (4 to
10) or shorter terms (12mo to 60mo) with commitment fees ranging
from $1,000 to $5,000 in exchange for the ease of obtaining a
faster cash type no-red-tape loan. These loans usually end
up to be the loan of last resort after the
borrower has exhausted all other “traditional” sources and
wasted 3 to 6 months of his time.
Hard money
loans have one central theme. There has to be clean cut, hands
down equity in the property or project to give the lender a
buffer factor to invest his or her funds. This equity must be
through appreciation in the property over several years, or a
big cash infusion used to improve the property and it’s earning
potential at some earlier date. Most hard money lenders will go
up to 50% to 70% of today’s value of subject property.
Soft hard
money loans are made on commercial properties, residential
properties, and raw land. Residential homes are more difficult
due to homestead and bankruptcy protection and foreclosure laws
in most states. Residential also falls under RESPA and truth in
lending laws requiring a lender to be licensed and have a branch
office in the state where the home is located, commercial
does not. Raw land is done with loan to value ratios of 50%
to 60% of the land’s appraised value.
Most
borrowers or loan brokers think of soft hard money loans being
made to folks with bad credit. Although some do fit this mold,
most hard money loans are made to borrowers with average to good
credit. So, why use soft hard money?
The
subject property to be purchased might be presently vacant or
under 50% leased out. It may have fallen victim to poor
demographics in a changing neighborhood over the years. Most
traditional lenders want property in strong areas and less than
10-15 years old. The property might have deferred maintenance or
in need of renovations to obtain a better value “once” improved.
A lot of lenders just don’t want to fool around with a loan that
just doesn’t already fit the guidelines, and will move on to the
next deal.
Even
though soft hard money loans are based on low loan to value
ratio's, don't be mislead into believing that all the lender
wants is the property. Lender's "do not" want the property.
They want the interest on their money. They don't want the
headache and liability of owning real estate. For this reason, a
perspective borrower must have a “specific exit plan” on how
they will be able to pay off this soft hard money loan at the
end of 12-24-36 month term. The lender wants to reinvest these
funds into another project. Think of hard money loans as a stop
gap or bridge situation, to get the borrower through a rough
spot to allow him to jump on an opportunity today, when the
traditional lender would pass.
Hard Money
Commercial Loans From $1 Million $10 Million
Hard
money loans are short-term bridge and gap financing for
distressed
and time critical transactions. Hard money loans are
available on entitled
and unentitled land, residential and commercial land
developments, for
rehabs projects on income producing commercial property,
partner buyouts
and on luxury residential properties.
Our lenders can be fund an economically sound project
very quickly---
sometimes in fewer than 10 days.
The value of the property is the primary qualification.
Hard money loans are
available on projects where the investor has significant
equity in the collateral
regardless of stated income, bad credit or past
bankruptcy . Hard money
loans can be used to reinstate foreclosures and
defaults.
Loan-to-value is between 50-65% of the "quick sale"
value of the property and
may be higher on income producing properties ready for
rehab. These loans
are available from $500,000 on residential property and
$1 million to $20
million or more on commercial projects. Rates and terms
are designed to
compensate for the lender's risk but may be as low as
10% with two points.
Hard money loans are more expensive than a bank loan,
yet less expensive
than an equity partner. Hard money loans typically do
not require income
documentation and may be available for all types of
borrowing entities.
Apply For A Hard Money Commercial Loan
