Hard money lenders are private investors whom lend their money out to borrowers at high rates, which banks would not do. These lenders provide loans to people who need money and have a property to secure such loan.
Hard money loans are easier to get than bank loans, and they are funded very fast. These loans are very common especially to real estate investors as asset based lending. In hard money lending, the collateral for the loan becomes the real estate. These are very different from traditional loans because the underwriting guidelines are different from banks.
Hard money is the only solution for those seeking urgent funding sources. Also, these loans are helpful to those who have situations where time is important and need to close quickly in a matter of days, and not weeks, for their money. For hard money lending, credit history is not a factor that determines the approval of a loan application. These lenders are not credit based lenders, although there are some that do check the credit scores of the borrower.
Hard money lenders provide money on a short term basis, normally 6 months to a year, so that borrowers can use it for various profitable purposes. Hard money loans may include real estate loan types such refinance, development, bridge, rehab, acquisition and others. Investors who use hard money to finance their projects usually have financial gain using hard money. The interest rate of hard money is usually at 14 percent and above and 2-10 points in original fees. Because hard money are expensive than traditional sources, borrowers always make sure that they have a financial gain using hard money. In that way, the high interest or points usually is offset by the monetary gain.
Hard money loans vary differently between lenders. Fees and charges such as due diligence fee, commitment fee and application fee, may be charged by lenders and varies significantly between lenders. Lender will generally fund a loan for 50 percent loan-to-value on raw land and up to 70 percent loan-to-value on the finished product. Lenders will fund a loan at an interest rate of 14 percent for a period of six months to three years. Also, borrowers are charged between 2-10 points as an original free, which is to be paid out of proceeds. Lastly, when choosing hard money lenders, borrowers need to understand how different options fit best in their plans.