Hard Money Mortgage Loans
by Lisa Phillips
May 2007
by Lisa Phillips
May 2007
A hard money loan is an equity or collateral based real estate loan
made by a private investor or private lender. Hard money loans are
sought when traditional banks will not lend for various reasons such
as property in foreclosure, credit problems or difficult to verify
borrower income.
Construction loans, large or unusual property loans such a ranch or
apartment complex also utilize hard turnaround and can be
completed in as little as two weeks.
Categories of Hard Money Borrowers:
Residential Property. Hard money loans can be used for owner
occupied single family residences, condominiums and town homes.
Foreclosure Borrowers. Hard money loans can offer a temporary
fix to borrowers facing foreclosure. Hard money lenders can
refinance a borrower and the borrower can pay off the original
lender and gain time to sell the property. The borrower can also
rebuild credit by making payments on time for 1 to 2 years and
refinance into a regular, more favorable mortgage loan.
Bad Credit Borrowers. Borrowers who cannot qualify for
conventional loans because they have less than perfect credit can
use a hard money loan as a solution. Borrowers who carry a lot of
debt may also qualify for a hard money loan. Lenders and investors
are looking for sufficient equity and the ability to repay the loan
more importantly than credit history.
Self Employed Borrowers. Self-employed borrowers with hard to
verify, inconsistent or unconventional income may turn to a hard
money loan. Hard money lenders are more likely to loan to someone
with little documentation.
Good Credit Borrowers. Some borrowers may have good credit
but little time to get the money they need for a real estate
transaction. Hard money loans can be finalized in as little as two
weeks.
Bridge Loan. A hard money bridge loan is used for a short period
of time until a permanent loan or financing can be secured. Bridge
loans provide a solution to make quick acquisitions, act on business
or investment opportunities. Bridge loans are also used to close a
transaction while another is being sold.
Large Cash-Out Amounts. Borrowers who wish to take hundreds
of thousands of dollars out of their homes and traditional lenders will
not approve.
Unusual and Hard to Appraise Properties
Construction Properties. Hard money construction loans are very
common. Depending on the real estate market and what is being
built, construction loans can be considered high risk. Some
traditional lenders will not even touch construction loans. A hard
money construction loan can be used to construct a building or to
make improvements to real property. The collateral for the loan can
be the land or the improvements. A construction reserve account is
opened to maintain disbursements throughout the duration of the
construction.
The Lenders. Private lenders and investors make up the bulk of
hard money lenders. They are willing to make unusual loans banks
and even sub-prime lenders will not touch. The hard money lender
bases lending decisions on whether or not there will be enough
equity in the property that if they have to foreclose they will still turn
a profit. A broker and other intermediary will arrange a hard money
loan between the borrower and private lender or investor.
Terms of a Hard Money Loan. Interest rates vary between 10.00%
and 18.00%, depending on the investor, borrower qualifications,
loan amount and purpose, property type, location and lien position.
The points charged on a hard money loan can be astronomical.
They can range from 2 to 10 points depending on the investor, loan
amount and purpose, borrower qualifications and property type.
As with any type of loan, read the fine print and be informed about
the fees, costs and terms. Hard money loans can offer a helping
hand in time of need but it comes with a cost. Make sure you do not
get into something that will dig you deep in debt.
made by a private investor or private lender. Hard money loans are
sought when traditional banks will not lend for various reasons such
as property in foreclosure, credit problems or difficult to verify
borrower income.
Construction loans, large or unusual property loans such a ranch or
apartment complex also utilize hard turnaround and can be
completed in as little as two weeks.
Categories of Hard Money Borrowers:
Residential Property. Hard money loans can be used for owner
occupied single family residences, condominiums and town homes.
Foreclosure Borrowers. Hard money loans can offer a temporary
fix to borrowers facing foreclosure. Hard money lenders can
refinance a borrower and the borrower can pay off the original
lender and gain time to sell the property. The borrower can also
rebuild credit by making payments on time for 1 to 2 years and
refinance into a regular, more favorable mortgage loan.
Bad Credit Borrowers. Borrowers who cannot qualify for
conventional loans because they have less than perfect credit can
use a hard money loan as a solution. Borrowers who carry a lot of
debt may also qualify for a hard money loan. Lenders and investors
are looking for sufficient equity and the ability to repay the loan
more importantly than credit history.
Self Employed Borrowers. Self-employed borrowers with hard to
verify, inconsistent or unconventional income may turn to a hard
money loan. Hard money lenders are more likely to loan to someone
with little documentation.
Good Credit Borrowers. Some borrowers may have good credit
but little time to get the money they need for a real estate
transaction. Hard money loans can be finalized in as little as two
weeks.
Bridge Loan. A hard money bridge loan is used for a short period
of time until a permanent loan or financing can be secured. Bridge
loans provide a solution to make quick acquisitions, act on business
or investment opportunities. Bridge loans are also used to close a
transaction while another is being sold.
Large Cash-Out Amounts. Borrowers who wish to take hundreds
of thousands of dollars out of their homes and traditional lenders will
not approve.
Unusual and Hard to Appraise Properties
- Second Homes, Vacation Homes, Investment Properties
- Land (residential and commercial)
- Apartment Buildings
- Cabins
- Mobile Home Parks
- Office and Medical Buildings
- Warehousing and Storage Facilities
- Ranch Homes
- Single and Multi-Unit Retail
- Mixed-Use Property
- Industrial & Automotive
- Hotels and Motels
- Resorts, Golf Courses, and Athletic Clubs
- Restaurants
Construction Properties. Hard money construction loans are very
common. Depending on the real estate market and what is being
built, construction loans can be considered high risk. Some
traditional lenders will not even touch construction loans. A hard
money construction loan can be used to construct a building or to
make improvements to real property. The collateral for the loan can
be the land or the improvements. A construction reserve account is
opened to maintain disbursements throughout the duration of the
construction.
The Lenders. Private lenders and investors make up the bulk of
hard money lenders. They are willing to make unusual loans banks
and even sub-prime lenders will not touch. The hard money lender
bases lending decisions on whether or not there will be enough
equity in the property that if they have to foreclose they will still turn
a profit. A broker and other intermediary will arrange a hard money
loan between the borrower and private lender or investor.
Terms of a Hard Money Loan. Interest rates vary between 10.00%
and 18.00%, depending on the investor, borrower qualifications,
loan amount and purpose, property type, location and lien position.
- Normally there is no pre-payment penalty.
- Typically hard money loans are set up as balloon payments
usually due in 1 to 2 years.
- Maximum loan-to-value ratio is from 50 to 70 percent. Some
lenders will go up to 75 percent.
The points charged on a hard money loan can be astronomical.
They can range from 2 to 10 points depending on the investor, loan
amount and purpose, borrower qualifications and property type.
As with any type of loan, read the fine print and be informed about
the fees, costs and terms. Hard money loans can offer a helping
hand in time of need but it comes with a cost. Make sure you do not
get into something that will dig you deep in debt.
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