Hard money mortgages are in huge demand today. With all of the foreclosures and loan woes today, in spite of Obama’s mortgage restructure plan, the demand still exists. Even though there is this big push on the mortgage companies to restructure loans and stop the foreclosures, this does not seem to be happening. The banks and lending institutions are following such strict guidelines that a very small percentage of those who are in mortgage default are actually getting any help. Enter the hard money lenders who are helping people to save their homes with hard money mortgages.
The basis of a hard money loan is not in the person’s current credit rating or even so much the borrower’s ability to pay back the mortgage. A hard money loan usually is funded by a private investor who has a large amount of money and is looking to get a better return than some stale CD plan at a bank. As a matter of fact, the hard money lender is putting his money in a safer place than the stock market in this day and age. Investing is real estate can, if done properly, be quite safe and profitable. Both the lender and the borrower can benefit from a hard money loan.
The investor will help a borrower get caught up on his house payments so the borrower will not lose his home and equity to the bank in a foreclosure or short sale. The lender will make a decent return on his investment. This can be a win-win situation. However, in some instances, the borrower is taking a larger risk than the lender.
The borrower is already in a financial crisis, if, after the loan is funded on the home, the borrower has another crisis, it can mean he will lose his home for sure. The reason for this is that the lender will guarantee his loan by lending only up to a maximum of 70% of the value of the home and ask for a first position lien on the property. This means one of two things, either the hard money lender pays off the bank and the entire loan on the property is hard money or the hard money lender will ask for another piece of property for collateral.
The important thing to remember is that the hard money lender will foreclose to get the investment back if the borrower defaults. The homeowner should be sure he can pay the loan back as agreed. As long as the loan can be paid back, the home owner can save his house by getting his money from hard money mortgages.
In the past, there has not been quite the demand for hard money mortgage loans there are today. The hard money lenders have always been, by tradition, private individuals that look to invest their money in real estate at a healthy interest rate. These loans are made by individuals because the traditional banks and financial institutions do not make loans to someone who is going into or is in foreclosure. You will be able to find someone who is wiling to make hard money mortgage loans on the internet with a few key strokes and a click or two of your mouse.
The hard money loan terms are usually quite aggressive in nature. The points or fees that you will pay to get the loan will be about double what the other types of mortgage loans would be for the same amount of loan. This is because if you are looking into hard money mortgage loans, you have probably exhausted all your other options and this is a last resort. The reason for this is that you are definitely a credit risk to say the least and the investor will want to be compensated for that risk. So the only way that this lender is going to make this loan to you is if it is very profitable for him.
The lender will also want to hedge his risk by lending on only a percentage of your home’s value. The highest amount usually lent to a borrower in this type of financial situation is 70% of the value of the home. This will insure that the lender can recoup his money if you do not perform on the loan. Sometimes this can be very tricky because some hard money lenders will want to have a first lien position on the property. If they take a second position the total loans against the house will usually never be more than 60 or 65% of the value. Again, this is to insure that the lender will get his money one way or the other if you default.
You should also be prepared to pay a higher interest rate than you are accustomed to on a mortgage. These rates are typically from 11% to 19%, all depending on the risk in this particular situation. It is worth looking into a hard money mortgage loans if you face losing your home to a short sale or foreclosure. No matter what the interest rate, if you can get a payment that you can afford and save your credit and home it will be worth it.
A hard money mortgage lender can be key in today’s economy. Now more than ever the real estate investor needs to have funding available that is not necessarily dependent on perfect credit. The financing will be only for a short term investment of real estate property. For the real estate investor, a hard money mortgage lender is usually their best option. Hard money loans are normally very short term loans that are made against real estate. These are loans that originate outside of the regular channels of conventional financing like banks. A hard money mortgage lender is usually a private individual or a small group of capital lenders. The hard money lender is often an individual that has done a lot of real estate investing and now wants to make his capital earn more money by investing in the projects of other real estate investors. Some of these lenders will use capital from their pension funds or IRA’s.
The term ‘hard money’ is usually considered another term for a ‘short term’ loan. These loans are often for less than a year and can even be for just a day or two depending on the investment property. Along with a hard money mortgage loan, there will be points and high interest rate charges. A point is usually one percent of the loan amount and is considered an additional fee or up-front charge with the interest rate falling between 12 percent and 18 percent annually. These are all variables that depend on the lender and the property. The points will also vary depending on the deal and will range between five and ten.
When a real estate investment will not qualify for traditional financing and the funding will be needed quickly, a hard money loan is the best and sometimes only option as long as there is good equity in the property. Usually the property is a really good deal for the borrower but they do not have quite enough cash or good enough credit to take advantage of the opportunity by using conventional funding. Sometimes even the primary residence homeowner will want to use hard money financing as a bridge so they can secure their property and will pay off the hard money loan in a few days when their traditional permanent financing comes through.
If you are looking for a hard money mortgage lender one good place to find them is through clubs for real estate investors. Investment groups can be found in most areas, even in the most remote places and these groups meet either weekly or once a month in order to do networking. The hard money lender usually can be found at these meetings or at least you will find investors who have connections with these types of lenders.
Hard money brokers are simply middlemen that work with borrowers and their lenders. Instead of borrowers going directly to a lender and vice versa, they contact a broker. But before we discuss further the roles of these types of brokers, let’s learn a bit of information on hard money in general to understand what these brokers are dealing with. Read on for more information on hard money and hard money brokers below.
A hard money loan is an asset-based loan usually used by real estate investors. If you plan to start a real estate business like purchasing properties, remodeling and then selling them, then you have a choice to get hard money financing as compared to a traditional loan you can get from a bank. Since hard money lending is based on assets, it’s not like a bank loan where you can be approved based on your credit score. With this kind of loan, you are approved based on the asset or property involved. A lender will base his or her decision on the property. Is it a good investment? Will it bring in a favorable profit? These lenders are also called private lenders because they handle their business discreetly. They also don’t have the typical 30-day loan processing time. Instead, they give out the finances needed to the borrower as soon as they approve of the loan. And of course, to approve that loan, they usually ask to look at the property and see for themselves if it is a good investment. So you’re probably wondering where do the hard money brokers come in?
Some lenders don’t communicate directly with the borrowers. There are those lenders offering hard money in large sums and some of them will require a broker to act as a middle man between them and the borrowers. These private lenders are filthy rich. They have a lot of extra cash to fund various investments. Thus, it’s only safe for them to interact only with the brokers. Most of them keep a low profile and manage their business discreetly. That’s why brokers are needed in these large transactions.
Hard money brokers facilitate the larger hard money loans. Sometimes, some of these brokers also have a small funding capacity. And so when a borrower approaches them with a small business venture, they themselves are able to offer the loan. However, when big transactions come in the way, that’s when these brokers find a lender that can accommodate the loan. Of course, they receive fees for rendering their services and those fees are dependent on the amount of the loan.
A hard money investor is one of the best compensated people in the real estate and loan business. There are actually two ways one can get into the hard money investment game. One way is to make hard money loans yourself. The other way is to invest your money in a company or LLC that specializes in hard money loans. Either way you look at this investment opportunity, it is a good return on a safe investment, if the hard money is loaned and managed correctly. In the economy today, there is a huge demand if you are a hard money investor.
The mechanics of hard money lending are actually quite simple. A hard money loan is a loan made on real estate to a borrower who is in some form of financial crisis. At first glance, that does not sound like a very sound investment and one would be crazy to lend money to someone who was in financial trouble. However, the hard money investor will always make sure that the money he invests will produce a very good return and will be quite safe.
No matter how you make your hard money investment, on your own or through a group of hard money lenders, the rules are the same. The first rule of the game is that the return on your investment will be a high interest rate with quite bulky fees at the front of the loan. The reason that the money demands such a high return is that it is usually lent to someone who is behind on their mortgage or has bad credit and needs money desperately for one reason or the other. The typical fees are about 5 to 7 points on the front of the loan and the interest rate is from 11% to 19%.
Here is where the money is secured. The hard money lender will not lend an amount in exes of 70% of the property value, and will want a 1st lien position on the property. This will insure that if the borrower defaults, he will be able to foreclose and sell the property to safely get his money out of the deal. In some instances the property will sell for over 70% of the value and that will all be profit. Not a bad deal. If you have extra cash and want to make a little money, look into becoming a hard money investor.
Those with credit problems such as a poor credit rating, a previous bankruptcy, or perhaps have even had to face a home foreclosure in their recent past will need to find a hard money mortgage lender in order to obtain a hard money home loan. Many times people have so much money tied up in their home and real estate that they find it necessary to borrow on their equity if quick cash needs arises. Replacing a worn out automobile or broken heating or air conditioning for the home are costly and require a quick fix. This is where obtaining a hard money home loan can prove beneficial to the borrower.
Hard money home loans are very similar to private mortgages, but they are made through hard money lendors who are willing to take a gamble in exchange for interest earned on the loan. The rate of interest on the typical home loan is based on whatever the going rate is when a loan closes. In the case of the hard money home loan, the rate of interest will be higher and typically based on what is know as loan to value guidelines. This generally means the property or real estate in question can be borrowed on based on an average of sixty to sixty five percent of the properties value. If the home is worth two hundred thousand dollars, then a hard money loan may be up to one hundred thirty thousand dollars. This amount will vary depending on how much equity the home’s owner has in the home.
Typically, a hard money investor will demand to see a current credit report done on the borrower. And they will need to communicate with any current mortgage holders to determine how much remains on any mortgages. They will also require an appraisal be done to find the true value of the home or real estate at the present time. Hard money residential lenders are allowed to charge higher than the average rate of interest because they enter into the agreement with high risk borrowers. These risky borrowers have already been to a Freddie Mac or Fannie Mae bank or government backed institution and have been turned down due to their poor credit history.
Hard money lenders will want to be the “first lien” holder and expect the borrower to pay off any existing mortgages or loans on the property with the hard money borrowed. This way they are assured of getting their money back if the borrower defaults. Obtaining a hard money home loan is always up to the discretion of the hard money lender.
This post will provide some guidelines on how to get a hard money loan, which is utilized by architects, land developers and small businesses to buy machinery or real estate property to avoid the need to sell any assets. However, before people should push through with their applications for hard money funding, they should familiarize themselves first with regards to the risks and benefits of a hard money loan. The disadvantage of this type of loan is primarily the high interest rates and other fees that are charged by the private lender and that you might sign up for a rate that would be bigger than you can handle. The advantages of a hard money loan are mostly the speed with which they are provided compared to conventional loans and the fact that they would not depend on the credit score of the borrower.
The first step in looking for this kind of loan is to search for lenders who have already experienced providing them. Banks and other traditional sources of funding do not provide it because of the high risks that are involved. And after you have located the hard money lender who has successfully provided this type of loan, it would be advisable to determine the prevailing money rates. However, the interest rates are not based on the federal rates but on the various loan quotes that have been made.
The next step is to have an expert determine the value of your property because this private money loan would be based on a certain percentage of this value. Make sure that you get the proper documentation that would get the appropriate loan amount. After this, do not forget to ask for the advice of a real estate lawyer and determine the usual prepayment penalties and what would happen in case of default.
Remember to apply and use only one hard money loan at a single time to avoid getting into a situation where your property may be foreclosed. Make sure that the projected cash flows of your real estate project would be capable of paying for the loan. In fact, a certain safety factor should be incorporated in the event that the expected amount of cash flow does not materialize. The final step is to work on the construction contracts, building permits and other documents that would be needed for conventional loans so that you can avoid the high interest rates in the future.
Finding a hard money mortgage loan is fast becoming the only option for those who are known as “subprime borrowers”. With the economy the way it is today there are a lot of home owners that are suddenly finding themselves in very bad financial situations and are facing foreclosure of their homes. Refinancing these existing home loans is much more difficult now because the leniency that once existed is no longer exists. Banks who offer mortgages are making their loan restrictions more difficult for most borrowers. Companies that offer private lending are now not just a last resort but the only resort with their hard money mortgage loan funding.
The problem with hard money loans is they do carry a much higher rate of interest than loans that banks offer. Usually a huge equity in the home is necessary to get a hard money mortgage. Many of the private lenders who do offer a hard money loan will try to customize the mortgage agreement to be good for both them and the homeowner. In past years hard money lenders were known as “loan sharks” because the rates of interest on the loans they offer are excessively high. When the borrower has difficulty paying the loan back the property is quickly seized by the hard money private lenders. In today’s economy the hard money mortgage loan may be the only way that the homeowner who has found themselves in financial difficulties will be able to remain in their home and escape potential foreclosure.
Now, instead of being “loan sharks” the hard money investor has become a hero affording the distressed homeowner the time needed to make financial changes that will keep them from losing their home. The subprime borrower, or near-prime, non-prime or second chance borrower now has a very useful tool that can help them keep their home.
There are a few things that the homeowner needs to consider before entering into hardmoney loans. Comparison shopping is important to get a good idea of the best deals of the day. Negotiation is possible with the private lender and the fees they offer with their loans should be something that you thoroughly understand. The terms of the loan should be a good deal for both the borrower and the lender. Only borrow what you actually need because money in your bank account tends to be spent, not saved. An attorney who is representing your interests in important no matter how reputable the loan company may be. Finally, honesty is the best policy especially when it comes to hard money mortgage loan applications.
A hard money lender is usually a private individual who provides a loan to the borrower based on the value of the borrower’s real property. The hard money loan is not dependent on the credit rating or score of the borrower but on a certain percentage of the quick sale value of the collateral. Quick sale value means the amount that the property could be sold by the lender during a time span of one to four months in the event of a default. The common loan-to-value ratio allowed by the lender is from 60 to 70 percent of the quick sale value. Here, it should be noted that if the property will undergo certain changes such as repair, the hard money lender would base the loan on the value of the property after it has been repaired.
The requirements for the hard money financing will vary to a large extent because these will depend on how the hard money lender views the risk presented by the borrower. It will also depend on the attitude of the private investor and the relationship that the borrower has already established. In some cases, the lender may simply inspect the property but in other cases he or she may require the borrower to submit copies of tax returns.
Because private investors or individuals are usually the lenders of this kind of loan, the interest rates and fees that are charged are usually much bigger than those charged by banks and other conventional lenders. So, what are the benefits of a hard money loan? The two most important advantages of this type of loan is that a credit check is not usually conducted because the loan is secured by the collateral and the money is made available to the borrower in much less time than a bank loan.
Meanwhile, because of the high interest rates and fees charged by a hard money lender, they may not be allowed to operate in certain states that have strict usury laws. Nevertheless, the regulation of this particular industry varies widely from state to state. Also, some lenders may be companies that serve a specific regional market or the whole nation. Some are even represented by brokers who usually take a certain percentage of the loan for their services in preparing the documents that are required. Other fees may be added to the interests, such as application fees and prepayment penalties.
Private money lenders can be a huge asset. In a variety of cases it is hard to launch a fool proof business idea to a thriving niche market. The drive to become an up and coming entrepreneur is sometimes halted due to the lack of funding. A private money loan can put you on your feet.
They are in a position to dedicate money to help get your venture off of the ground. When the banks say no, you still have a chance to succeed with a private financier.
Their business is making good, sound investment decisions that are proven to be profitable for all parties involved. They are always seeking excellent opportunities that will not only help you, but bring in a nice return on their investment. This makes them extremely flexible and easy to work with when it comes to securing financing. The most common criteria to meet that is favored by private money lenders is having a remarkable initiative, a service, or a product that will quickly be welcomed in the market by consumers.
Private money loans could be used for almost any business purpose. Many investors look at any and every proposal and deal. There are some that solely focus on operational growth, funding promising franchises, and business acquisitions. Because you are dealing with a private sector, depending on the amount of the loan you are requesting, some lenders may have the funding immediately available and some may not. In many cases additional investors are solicited to help close the deal. Although these actions can result in a successful loan approval, it may take a little more time to come to terms and an agreement.
There are a few lenders who can lend expertise and valuable support by pooling their resources using networks and business associates to get you started on the road to success. In this case, they rely on other resources to assist you in lieu of a private money loan. Knowing this, when you start your search, a good understanding of how an investor can assist with your goals upfront is important.
Selling your idea, effectively communicating and outlining a clear roadmap of how the business will grow quickly is vital to qualifying for a private money loan. Integrating into your plan how your business will continue to grow long term is music to private money lenders ears which can ultimately lead to an approved loan.