The facts about Hard Money Lenders
So many first-time investors are interested about the hard money lending process. What is it? Is it valuable? Can I potentially benefit from it? I would like to share with you a few of the fundamental principles about hard money lenders. Firstly, let’s discuss what the term “hard money” actually means. When funding is discussed between investors, it’s regarded to either be “soft” or “hard”. Generally soft money is easier to qualify for due to the less strict terms in place. Hard money loans, on the flip side, is just the reverse. It is far more restrictive. Not in that it is less easy to acquire, but the terms are a whole lot more strict and extremely special. They should be, because most hard money loans come from private individuals or investors with a lot of cash available. This is the reason hard money is synonymous with the term “private money”. The cash used for investment functions comes from individuals, the same as you and I, not an average lending institution. This is the reason the terms must be this strict. You’d need the same, if it were your cash.
So what exactly are a few of the conditions of “hard money lenders”? Clearly it changes from lender to lender. It really used to be that hard money lenders would give only based upon property included in the deal. Recent changes in law is now more favoring towards consumers. Consumer protection laws, expensive and time intensive court processes, and so on have driven some hard money lenders to have even more restrictive terms now.
It’s better to be aware of what the terms are prior to talking to a lender. Here are a few of the terms you’ll be able to expect to see. Generally they’ll just loan you up to 70% ARV (after fixed value).
Other terms you’ll be able to anticipate are high rates of interest. Interest rates change from 12% to sometimes as high as 20% with terms from anywhere around 6 months to several years. Many times these rates change depending upon your familiarity and your credit score. Typically, there will closing fees or points associated with the loan as well, so that is also something you will definitely want to look at. All of these are significant things to think about when deciding on a hard money lender.
Other points to consider are how fast funds will soon be accessible. Often, when you locate investment properties, you must go fast. It is significant to start relationships with hard money lenders that are high quality potentials as soon as possible. In addition, you have to know about prepayment fees. Such issues with the deal can truly damage and cut into your profits considerably. Attempt to prevent prepayment fees.
Many hard money lenders today will additionally need you to complete tax returns, your latest pay stubs, and bank statements and or a credit application which will ask you for W2’s. Again, it is about shielding their assets.
So when is it a good time to make use of a hard money lender? Hard money loans are very good for people who have less than ideal credit and cannot qualify or for starting investors who might not have cash. Investors additionally use hard money funding when they want to buy immediately. Conventional loans or typical soft money loans take considerably longer to obtain, and that time is too valuable when dealing with auctions, fix and flips, etc. Certainly it’s going to cost you interest and fees to borrow that cash, but the benefits outweighs the expenses involved!
How will you locate hard money lenders? There are scores and scores of hard money lenders waiting to give cash to you. The best method to locate hard money lenders would be to speak with a mortgage company and ask for referrals. It is also possible to call a real estate agency or a title business. Hard money lenders deal with sellers and buyers of houses daily. Shop around until you get the top one that can meet your requirements. Another solution is to hunt on the internet for hard money lenders. Some will give nationwide.
We hope this gives you a little better understanding of how hard money and the hard money lenders and lending process works. As always, it is advised to do your own due diligence before selecting the hard money lender for your next real estate project!