Hard money is a catch all term for asset based loans issued by private groups or individuals. This article discusses some of the advantages and potential drawbacks involved with this type of lending.

Most commercial lending requires a tedious approval process. A borrower’s credit history is carefully reviewed, their income is verified and in many cases a substantial down payment is needed to qualify for a regular commercial loan.

Hard money is different. Hard money is a general term for loans that are secured by the collateral i.e. the property being borrowed against. These types of loans are issued by private groups or lenders, who consider the value of a subject property as being of greater importance than a borrower’s financial situation. Should a borrower default, the hard money lender simply resells the property at a profit to make up for the outstanding loan. As a rule, hard money loans are short term and often come with double digit interest rates.

While hard money may seem expensive it is still a sensible option in certain cases. Hard money is an excellent option for immediate investment opportunities that need to be taken advantage of quickly and which cannot be deferred by the traditional loan approval process. Fix and Flip real estate investors will find hard money particularly useful. This type of borrower can use hard money to purchase a property, quickly improve its value, sell the property for a profit and then quickly pay off outstanding loan. Hard money can also serve as a bridge loan to other types of more conventional financing. Borrowers can purchase a property with a hard money loan and then refinance once their credit situation improves.

Considering its expense what are the main benefits to hard money?

Hard money is above all a much faster method of financing than traditional lending. A hard money lender won’t spend many hours combing through potential borrowers financial records. Instead they will look mainly at the potential value of the subject property. This greatly speeds up the approval process. Borrowers with an outstanding relationship with a hard money lender can see the process move even faster. Hard money lenders are private groups or individuals and can offer more flexible terms when compared to traditional banks.
Traditional banks have a strict, highly formalized underwriting process which restricts their ability to offer better terms to borrowers. Hard money lenders can look at each deal on a case by case basis. If an investment opportunity is particularly attractive, a hard money lender can potentially offer lower interest rates and better repayment schedules to borrowers which would be impossible to get at a regular bank.

Hard money is easier to qualify for, but there are some drawbacks.

Because the value of the subject property is more important to hard money lenders than a borrower’s credit history, unqualified borrowers can still be approved for a hard money loan. However because of this risk hard money lenders often limit the amount of the loans that they issue. Hard money loans are usually offered at between 50 to 70 percent of the value of the subject property. Borrowers should therefore have substantial assets on hand to make up the difference. Borrowers can also be expecting to pay several percentage points of the total loan amount in origination fees.

The first step to finding a hard money lender is to connect with the local real estate investment community or to look for collateral based lenders in your area. Borrowers should strive to develop a good relationship with any hard money lender they approach in order to secure the best terms on their loan.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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