What is Hard Money Lending And When Should You Use It?
Posted January 12, 2011 by Bernz
Seasoned real estate investors often use a type of financing called “hard money lending”. While this type of financing is mostly used by investors specializing in single-family properties, it can also be used to finance commercial properties. If you’ve never heard of “hard money lending”, you’re not alone. Most people haven’t.
One of the reasons this type of financing is not well known outside of the real estate investing industry is that the source of funding comes from private parties. There are no large stockholder-owned corporations doing this kind of lending. Typically it’s a private individual with deep pockets.
Another reason you haven’t heard of it is that a very specific type of business loan. “Hard money” loans are usually set up as short-term balloon mortgages. The monthly payments consist of interest only, and the principle is paid at the end of the loan term in one lump sum. It’s not a good long-term financing vehicle, but it can be an excellent source of funds for investors who are acquiring fix-up properties.
Two reasons these loans are so popular with investors are: the loans can close very quickly, and there often is no credit check involved. Although most of the private lenders do require appraisals, they can usually arrange for an appraisal very quickly (usually within a day or two). Then loan approval can occur almost immediately after the appraisal is reviewed. So a hard money loan can usually close within a week.
The reason there is no credit check required for many of these loans is that they’re highly collateralized. Usually the loan to value ratio (LTV) is only 70% or less. So the borrower either has to have a 30% or more down payment, or at least 30% equity in the property. This low LTV reduces most of the lenders risk.
Interest rates for hard money loans are typically 10 points or higher than interest rates for conventional residential loans. But the monthly payments are comparable. The reason for the low monthly payment is that no principle is included. The loans are usually structured to be paid off completely within six to 12 months. The principal must be paid off at that time, or at the time the property transfers to a new owner.
Since hard money loans are often used to by investors to acquire properties to “flip” (fix-up and resell), the short term nature of the loan is a good fit. And it allows the investor to have access to capital in order to be able to take advantage of opportunities that need a quick closing.
3 Responses to “What is Hard Money Lending And When Should You Use It?”
Leave a Reply
All the articles and content written here on Invesmint.com is for general information only and based solely on the authors personal opinions and discretion. It was not and should not be a substitute for professional advice. Visitors of this site (Invesmint.com) are encouraged to seek appropriate professional advice before acting upon the content or information from this site. Again, the content of this website is not a source for professional advice.
INVESMINT.COM hereby excludes liability for any claims, losses, demands, or damages of any kind whatsoever with regard to any information, content, or services provided at our web site, including but not limited to direct, indirect, incidental, or consequential loss or damages, compensatory damages, loss of profits, or data, or otherwise.
Get Updates via Email
-
Advertisement
-
Recent Posts
Recent Comments
- Recession Proof Your Job: 4 Ways to Avoid Unemployment on Don’t push the panic button (yet!)
- Skirt» Blog Archive » what is hard money lending on What is Hard Money Lending And When Should You Use It?
- 401 k Plan on What is Hard Money Lending And When Should You Use It?
- San Antonio AC Repair Guy on Debt and Obesity Are Related, Study Finds
- Kat on Borrowing from your 401k Plan – Is it always the wrong thing to do?
- Tweets that mention An Introduction to Investing in the Stock Market -- Topsy.com on An Introduction to Investing in the Stock Market
- Philip Walter on What is Hard Money Lending And When Should You Use It?
- Tax debt settlement on Smart Ways to Get IRS Tax Debt Relief
January 17th, 2011 at 2:45 am
Hard Money lending is one of the best way of rehabbing your home as per your requirement without waiting for money. We do offer 100% financing and 100% repair money at Do Hard Money.
February 28th, 2011 at 1:21 am
Hard Money lending is one of the best way of rehabbing your home as per your requirement without waiting for money.
June 11th, 2011 at 4:09 pm
[...] What is Hard Money Lending And When Should You Use It? Jan 12, 2011 … Seasoned real estate investors often use a type of financing called “hard money lending”. … [...]