Hard Money Commercial Lenders Don’t Come Looking For You
When looking for a hard money loan you will find there is little difference between the hard money commercial lenders and the private hard money lenders. In fact the biggest difference may be in the rate of interest charged on your loan. In other words, your transaction will cost you more. Additionally, these commercial lenders do not necessarily follow the guidelines that a Fannie Mae or a Freddie Mac lender residential lender will. Usually the average hard money commercial lenders are is considered to be in a strong financial position and be an institution that has vast deposit reserves.
The large financial reserves they have allow them to take the risk that is often involved when making hard money commercial loans with those who need to borrow that way. The typical borrower who needs to go the way of a hard money loan is a poor credit risk due to past history which may include bankruptcy or foreclosure on previously owned properties. If the property is not in good condition for various reasons, the lender may require the property to be free and clear of any other loans or mortgages before taking on the risk, even when high interest rates will apply to the situation. The “loan to value” ratio may require adjustment from the normal rate of sixty to sixty five percent when hard money brokers or lenders become involved.
Hard money commercial lenders and bridge lenders work with similar programs and have short term loans designed to bridge a gap which the borrower needs to fill. Lending money to fill that gap, at higher than normal rates of interest, and basing it on a lower property value along with the “loan to value” ratio allows the hard money financing to be successful for both parties involved.
Traditionally these commercial hard money loans are considered to be very high risk along with a somewhat high default rate. If these property owners do default on their loan, the will run the risk of losing their property in foreclosure. Additionally, if they have had a previous bankruptcy declared they cannot even use that as a backup, and may lose their real estate completely. If the property owner can manage to sell however, and satisfy the hard money commercial lenders, this will enable them to keep their property and whatever remaining equity they have on their property. Hard money lenders are not in the business of lending just to do those seeking funds a favor; they expect to make a profit.