Hard money lenders are individuals or small groups who lend money based on the property that you are buying, as opposed to just your credit score. Usually, these loans cost more than then an average mortgage, and sometimes even twice as much. Hard money offers higher interest rates and lower loan to value ratios. Hard money interest rates can start at 15%, 18% or higher.
Why, you ask, would you want a hard money loan? Well, hard money deals are often sought after for their quick turnaround (usually within 7-14 days to process). Basically, the red tape that is usually associated with taking out a loan is essentially eliminated, meaning that you can proceed with a purchase that will yield high returns soon, and not miss out on what could possibly be the chance of a lifetime.
Why would someone want to lend this hard money in the first place is another great question. The reason is that there is a lot of security when it comes to the investors. Most hard money loans are secured by a property with 30% -50% equity, so the investor is well protected.
Since hard money loans are such mutually beneficial relationships, they are pretty secure, and they are a unique way to finance something that you might otherwise not have been able to finance.
Probably the best thing to put a hard money loan towards would be property, and many hard money lenders tend to specialize in one area. For instance, some might concentrate on loans targeted towards residential housing, and refuse to invest in land property, simply they wouldn’t know much about it.
Other common applications of hard money loans include: Houses fixes and flips, construction loans, when a buyer has credit issues through no fault of their own,and when a real estate investor needs to act rapidly.
Talk to some private hard money lenders to find out if a hard money loan is the right thing for you, and the property that you are looking at. It just might result in the best investment you’ve made in your life.