- Self-employment is not seen as unacceptable to private lenders, whereas many banks view self-employment negatively and strongly prefer lending to professionals with very steady income.
- Hard money loans are more expensive than bank loans, with higher interest rates and origination fees;
- The quality of hard money lenders varies substantially from one lender to another; some are unscrupulous and may be seeking to have the borrower default in order to foreclose on underlying real estate as a business strategy;
- Some lenders may collect non-refundable deposits without having the capital required to make the loan; they may either hope to find the capital once the loan is “tied up” or in rare cases, they may simply aim to collect the deposit with no intention of funding the loan.
What kinds of property do hard money lenders lend on?
Hard money lenders will lend on both commercial and residential properties, although many will not lend on owner-occupied residences due to higher thresholds of scrutiny required by law. Commercial properties can include industrial, shopping centers, and office buildings. Some, but not all, hard money lenders will also invest in raw land slated for development and even hotels.
Vacation homes (single family payday loans in Collinsville residences), even if not a primary residence, are considered “owner occupied” and may or may not be financeable depending on the lender’s criteria regarding owner-occupied home loans.
When should you use a hard money lender?
A borrower might consider using a hard money / private money loan in situations where he or she is willing to pay a higher interest rate and/or higher up-front fees in the interest of gaining access to capital more quickly, dealing with less bureaucracy and more transparency during the application process, and finding capital to pursue an opportunity that banks will not finance, either because they are unwilling or unable to do so.
What does the term “hard” mean in “hard money lender”?
The “hard” in hard money lending refers to the higher price which is charged to borrowers both in terms of interest rates (typically high single digits or low double digits) and higher loan origination fees (often around 2 percent of the loan amount, versus 1 percent or less for a typical bank loan).
Who funds hard money loans?
Hard money loans are typically funded by individuals or by funds that aggregate capital from multiple wealthy investors. Individuals who invest directly into a single loan are known as trust deed investors. Many trust deed investors are real estate investors/owners who invest in “bridge loans” to keep available capital working to generate a higher rate of return, rather than leaving the capital in banks earning minimal interest rates. Investors who prefer to invest passively in a fund are typically not as experienced in real estate investment and choose to pay the fund manager a fee to oversee the process of sourcing, selecting and originating a series of bridge loans.
How do I get a hard money loan?
The best way to secure a hard money loan is to know or be referred to a reputable hard money lender. The prospective borrower can simply call and describe the nature of the project for which capital is desired. When presenting a project to a lender, the borrower should be prepared to provide the following information:
Deadlines and dates which are critical to the transaction (for example, the closing date for a purchase if the borrower is seeking a purchase money loan);
- The specific property address;
- Whether the loan is for a property acquisition or refinancing of an existing loan;