Hard money lending is an industry that often gets overlooked. When you think about borrowing money, most of the time, you think about banks and traditional mortgage lenders. However, hard money lenders give you an alternative to getting the money you need. Because it isn’t your first thought many people have no idea how the process of hard money lending works. Let’s take a closer look at what a hard money loan is and how to get started.
What is a Hard Money Loan?
A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms. The loan requires monthly payments of only interest or interest and some principal with a balloon payment at the end of the term.
The amount the hard money lenders are able to lend to the borrower is primarily based on the value of the subject property. The property may be one the borrower already owns and wishes to use as collateral or it may be the property the borrower is acquiring. Hard money lenders are primarily concerned with the property’s value rather than the borrower’s credit. Borrowers who cannot get traditional financing due to a recent foreclosure or short sale can still obtain a hard money loan if they have sufficient equity in the property that is being used as collateral. This makes hard money lenders a great option when the banks say “no”.
When to use a hard money lender?
A borrower can get a hard money loan on almost any type of property – including single-family residential, multi-family residential, commercial, land, and industrial. Hard money is your source of financing when banks are not an option or the loan is needed in a short period of time. Hard money loans are ideal for situations such as:
- Fix and Flips
- Land Loans
- Construction Loans
- When the Buyer has credit issues
- When a real estate investor needs to act quickly
Who Should Use a Hard Money Loan?
Real estate investors choose to use hard money for many different reasons. The main reason is the ability of the hard money lender to fund the loan quickly. In most cases, hard money loans can be funded within a week when traditional institutions can take up to 45 days to get funded. The application process for a hard money loan generally takes a day or two and in some cases, a loan can be approved the same day. When you need a quick turnaround and don’t have time to wait, hard money lending is a great option.
The ability to obtain funding at a much faster rate than a bank loan is a significant advantage for a real estate investor. Especially when the real estate investor is trying to acquire a property with many competing bids, a quick close with a hard money loan will get a seller’s attention and set their offer apart from the rest of the buyers offering slow conventional financing. Another reason a borrower may choose to use a hard money loan is that they have been rejected by the banks for a conventional loan for reasons such as short sales, foreclosures, credit issues, etc. Another important thing banks need to see is income history. If a potential borrower recently started a new job, the bank may deny the loan request due to insufficient income history, even if the borrower makes a healthy income. Hard money lenders are able to look past these issues as long the loan be repaid and the borrower has enough equity invested in the property.
Interest Rates and Points
The interest rates and points charged by hard money lenders will vary from lender to lender and will also vary from region to region. Hard money lenders take on more risk with their loans compared to a conventional bank loan. Due to this higher risk involved on a hard money loan, the interest rates for a hard money loan will be higher than conventional loans. Interest rates for hard money loans range from 10 – 15% depending on the specific lender and the perceived risk of the loan. Points can range anywhere from 2 – 4% of the total amount loaned. The interest rates and points may vary greatly depending on the loan to value ratio.
Borrower Requirements
Hard money lenders are primarily concerned with the amount of equity the borrower has invested in the property that will be used as collateral. They are less concerned with the borrower’s credit rating. Issues on a borrower’s rating such as a foreclosure or short sale can be overlooked if the borrower has the capital to pay the interest on the loan. The hard money lender must also consider the borrower’s plan for the property. The borrower must present a reasonable plan that shows how they intend to ultimately pay off the loan.
Where to Find a Hard Money Lender You Can Trust?
Yieldi makes it very easy for a borrower to get a non-traditional loan in an easy, quick, and effective manner. While Yieldi understands there is risk with these loans, borrowers can feel at ease knowing there is another option. We provide reliable funding for your real estate needs. We fund quickly in a no-nonsense approach. As a borrower it is super simple.
- Create an Account: Apply for your loan and get a fast and reliable response.
- Borrow: From the time you receive your term sheet and all the way through closing, Yieldi will guide you through every step of the process.
- Track Progress: With our online portal, you have access to all of your account information including payoff information and more.
We pride ourselves on our unique programs: we offer both Commercial and Residential Loan Programs to borrowers & brokers seeking to work with Yieldi.
Author: Yieldi
