Hard Money Lender
Hard money lenders are finance companies who offer a specialized type of real-estate backed loan. Hard money lenders provide short-term loans (sometimes referred to as bridge loans) that provide funding based on the equity of real estate that has been collateralized for the loan. Hard money lenders typically have much higher interest rates than banks because they fund deals that do not conform to bank standards. Hard money loans are more expensive because they are not based upon traditional credit guidelines. As hard money lenders may not require the documentation that typical lenders require, they experience much higher default rates (and, thus, charge a higher rate of interest to cover losses). Individuals may choose to take a hard money loan for numerous reasons. The most common reasons being: Time (the deal must close win a very short time period) Damage (The property has significant damage which has prevented a traditional lender from considering it) Credit (The borrower’s credit score is too low to be considered by a traditional lender) Hard money collateral is typically the real estate loaned on. However it can and does sometimes include other assets of the individual or business borrowing the hard money. In many cases a hard money lender will offer a smaller loan size based upon a lower “Loan to Value Ratio”. This means they may opt to loan no more than 65% of the property value. Therefore it is common for real estate investors to offer additional real estate owned as collateral in order to obtain a larger loan amount. This is known as cross-collateralization. Hard money lenders may serve a regional market, or may offer loans nationwide. Some hard money lenders are represented by brokers who may take a percentage of the loan (called points) in exchange for preparing and submitting the loan documentation (as well as finding a direct lender). Other hard money lenders deal directly with applicants. Other ways hard money lenders may vary include: charging application fees (some charge, others charge fees only when closing); prepayment penalties (some or none); and a focus on investment properties or a willingness to finance owner occupied property as well.