Posts Tagged ‘hard money equity lenders’
Finding Hard Money Equity Lenders
Hard money equity lenders are avidly sought by real estate investors because the loans they offer do provide an opportunity for the investor to not only purchase their property but also have the funds to refurbish their investment so that they can make a significant profit. Hard money equity lenders are usually private lenders. A hard money home loan is a short term loan that is actually pretty expensive and usually not advisable. The loans are high in fees, rates and loan to value.
Hard money lenders require a huge amount of money in equity to cover the possible eventuality that the borrower cannot repay. With the high equity the lender can resell the property below the market value and turn it around quickly if necessary. This is in theory though because in today’s economy there are a number of properties available that are in foreclosure, short sales and REO’s making a below market value property just ordinary and not the exceptional deal it once was. This means that the investor who offers hard money funding has become very selective about the property and the borrower that they choose. The last thing that a lender wants is a loan investment that turns into a hard money foreclosure.
The interest rates that are part of the loans that the hard money equity lenders offer are very high. They end up being much higher than any of the traditional loans for either residential lending or the conventional commercial loans. The risks involved in the loans are much higher than the conventional long term loan so therefore the rates are much higher. Because this is typically a short term loan of from three months to two years the interest rate is not a major concern. The borrower usually plans on paying the loan off quickly so that the interest rate does not have the impact it would if the loan were for the conventional long term payoff.
Because of the nature of the loans that hard money equity lenders offer, the borrower will usually end up paying anywhere between five and ten points plus the usual closing costs. These fees are high and really only make any sense to the real estate investor who stands to make a lot more money on the property by using this short term loan than he will lose in high fees and high interest rates. The sole purpose of the real estate investor to take on this type of loan is to make money.