How to Find a Hard Money Lender

How to Find a Hard Money Lender

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There are several ways that you can locate a hard money lender that has a good reputation. One of the simplest ways to find a hard money lender is locally. You can find a lender local to your area is by searching online. Of course, there are many companies that will be listed in your search results. However, you will likely come across a larger list of hard money lender names as well. This is a good way to start the process of your search. By gathering a handful of lender names you can begin researching the individual lenders you may be interested in contacting. Once you start contacting different loan providers you can evaluate the information you have been given. It is important that you don’t just jump the gun and go without the first lender you find. Doing your research and thinking the process through is important for responsible real estate investing.

Find a Hard Money Lender Near You

If you are looking to find a hard money lender near you, it may take some hard work. One of the first things to do is to reach out to real estates agents in your local area. Many real estate agents near you can provide you with referrals to lenders they are familiar with. On top of this option, you can reach out to groups involved in real estate investment opportunities. Groups who take interest in this type of investment are likely to have lender names. People with personal or business relationships with lenders can definitely help you.

Some people try to stick to an online approach when finding a loan. If this is the case, you’ll want to find a hard money lender directory. Most directories will have lists of hard money lenders that are available in your area. Hard money lenders are typically private lenders that can help fund your flipping business. When you find one either in your state or city, they are usually financially ready to help you.

Local Club Meetings

Local investor club meetings are also a great way to find a good hard money lender. Most cities and states hold these meetings regularly. Locating one of these lender club meetings is how many investors connect with potential borrowers and network with the investors in the area. It’s always best practice to get your name and face out there. Networking with individuals who have the same goals and interests as you can only help you be more successful. On a rare occasion you won’t find any hard money lenders are the local meeting. However, if this happens you have a host of individuals in the meeting that are investors and can likely point you in the direction of a reputable lender. Real estate investors are very familiar with the practice and business of hard money lenders so it won’t be hard to get a few recommendations of lenders in your area. On the same note – professional individuals or brokers in real estate or conventional mortgage are often able to make a referral to a hard money lender who is highly experienced. Building a large network and leveraging that is an ideal way to get in contact with a recommended lender to support you.

National Lenders

Without doubt, there are always well-known national lenders that people turn to for loans. If you have little luck with local assistance or you are more interested in getting a loan from a larger lender, you’ll need to look into national online lenders. National Lenders offer commercial and residential investment loans. Although this could be the easiest option for some you need to research each individual lender before you actually contact them. Doing your research help you determine whether the lender can give you what you need or not. Each national lender specializes in something more or different than another. Some common national hard money lenders are Lima One Capital, Lending Home or Patch of Land. These types of hard money lenders are more aimed at providing loans for property renovation or flipping houses. If you are looking for commercial property investment loans, a national lender such as Finance of American Commercial may be a good option for you.

Be organized and professional

Once you have gathered your list of hard money lenders through recommendation or other avenues, start contacting them. if a private lender is going to provide you with lending assistance, they will have to believe that the deal you have is going to be profitable. If your proposal and deal is not up to par, a lender is not going to give you a hard money loan.

As stated, you’ll need to begin by finding a good deal. When you find a good deal, you can look for a hard money lender with confidence and hopefully get them to fund your proposal. However, without a deal that is actually good, the likeliness of you getting a hard money loan will be low. The nice thing about a hard money lender is that the process is flexible. Applying for a hard money loan is something that both an experienced as well as an inexperienced real estate investor can do. Another great benefit is that hard money lenders do not look at a person’s credit score. Many lenders will actually approve real estate loans to individuals who have low if not poor credit scores.

After Finding A Lender

After you find a hard money lender that you are going to request a loan from the process should be straight forward. It turns out the hard money loan process is known to be quick. One of the perks of hard money lenders is that the application to the underwriting and approval is done in a speedy fashion. Moreover, the disbursement of costs for renovation are simple and fast. Learning how to find a hard money lender can seem intimidating at first. However, if you stick to it and put yourself out there, you will achieve your desired outcome. Happy real estate investment opportunities!

What Is a Hard Money Bridge Loan?

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A Hard Money Bridge Loan is a type of loan that is issued by a Hard Money Lender. It’s a private company or investment pool instead of a conventional bank. You may have heard about Hard Money loans because of their increasing popularity in the fix and flip housing market.  The most common situation it is used under is residential and commercial real estate transactions.

Didn’t know that money could be hard?  The term hard money comes from the idea that there is an actual hard value behind the loan.

Generally, it does not exceed 85 percent of the residential property value and 65 percent for commercial properties. Hard Money Bridge Loans typically having higher interest rates and shorter pay-off time periods.

What Purpose Does it Serve?

Are you contemplating a bridge of hard money right about now and wondering what it could possibly be used for? Allow me to give you the scoop. Bridge loans are used as a stop-gap for certain situations and is then repaid shortly after. Common loan terms are 12 months to 36 months.

Imagine this, you’ve found a house that needs some fixing and intend to flip it for a big profit. You go to the bank and get a big fat no, its too big of a risk. That’s where a Hard Money Lender comes in and offers a bridge loan against the value of the property.

You spend 6 months renovating and turn a nice chunk of change for your efforts. The loan is repaid with money from the sale.  You wouldn’t be the first one, flipping houses is now a $56 billion market and private or hard money lenders have plenty of hands in this cookie jar.

How it Can Help You?

“Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment it insures the possibility of satisfying a new desire when it arises.” -Aristotle

Bridge Loans can be helpful for residential property owners as well as property investors. Sometimes a family may be selling their home with the intention of using the funds to purchase a new home.

If a hiccup occurs and the timing isn’t just right a family could find themselves missing the opportunity to purchase their dream home. A hard money bridge loan can fill a need until the old home is sold.

In certain situations, money is needed before permits have been finalized. A conventional bank won’t issue a loan until the ink has dried on permits. So how does a developer get started without any capital?

Getting a hard money bridge loan offers developers the chance to get the funds they need now and pay it back after a loan with lower interest through the bank becomes available.

Real estate isn’t the only customer of the hard money bridge loan, businesses that loose major investing partners take advantage too. If a stockholder pulls out their investment and the company faces certain death, a bridge loan replaces the lost funds and is paid back when a new shareholder comes into the fold.

Don’t Get Scammed

Be on the lookout for predatory lenders, while many Hard Money Lenders are honest and true there are still some bad apples in the bunch. USA.gov offers some helpful tips to protect yourself.

Some easy to spot red flags are lenders who offer to pay more than the property is worth, hoping that the loan will go unpaid so that they can reclaim the property.

Interest rates that are too low will generally be accompanied by unexpected fees to lure you into choosing their lending firm over others with higher interest rates. That firm turns a profit with undisclosed expenses. Keep your eyes peeled for firms that seek a loan insurance fee upfront or demand it in a strange payment method.

A general rule of thumb is no cash upfront, the majority of the fees will be processed at the closing of the loan terms through a title agency. Always question a lender who asks for money upfront for a loan insurance fee, these should be paid to the loan insurance company directly.

Lastly, vet your lender, cross-reference phone numbers with known scams. Speak with someone over the phone, visit the office or get a reference from trusted reviews or friends.

Sources:

https://www.forbes.com/sites/forbesrealestatecouncil/2017/12/05/how-the-rise-of-private-lending-is-reshaping-the-mortgage-market/#5a8a750552ae

https://www.attomdata.com/news/heat-maps/2016-year-end-u-s-home-flipping-report/

https://www.usa.gov/mortgages#item-36897

 

 

Some Jargon To Know Regarding Hard Money Lending

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If you are an investor and you want to start using hard money loans, you may feel like a fish out of water. It is very important that you research your options before choosing a hard money lender so that you get the best deal possible. During your research, you may come across a number of terms that you may not understand. The following looks at some of the most commonly used jargon in the industry.

1. Loan to Value

The loan to value ratio is something that is of importance in all types of loans.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.

The higher the LTV, the greater the risk, meaning you may have to supply additional collateral.

2. Lien Position

If your investment fails and has to be liquidated, the lender wants to know where in the chain they are in terms of repayments. Ideally, they want the 1st lien position, which means that they have top priority. They may, however, agree to 2nd position as well.

3. Loan Parameters

The loan parameters are basically the acceptance criteria that the lender has put in place.

The factors used to determine whether or not to provide a loan to the borrower.

These parameters tend to be very different with hard money lenders than what they are with traditional financial institutions. Often, they will look at things such as your existing debts, your current credit score, and the type of collateral that you have to offer. Hard money lenders are private lenders, either individuals or groups of individuals, which means that they can set their own loan parameters as they see fit. Banks, by contrast, have virtually the same parameters across the board.

4. Bridge Loan

A bridge loan is a short term solution that covers the financial gap between two transactions. If you were to purchase a home and your old home hasn’t been sold yet, the bridge loan can cover those costs.

5. Rehab Loan

A rehab loan is an investment loan on properties in a state of disrepair. Generally speaking, traditional banks are not interested in providing rehab loans, which is why a hard money loan may be required. That is because private lenders are willing to look at the potential of a property, whereas traditional banks are only interested in what the property is currently worth. Rehab loans are heavily regulated if they are provided by the Federal Housing Administration (FHA).

The rules for an FHA 203(k) Rehab loan include restrictions on the type of property that can be rehabbed under this program, as well as requirements for the condition of properties that are eligible for the 203(k). Those restrictions include the number of units the property has–eligible homes may have one unit but no more than four, and the dwelling must have been completed for at least one year, according to FHA.gov.

6. Commercial Loans

These loans are used for equipment upgrades, new product lines, repairs, expansions, and so on. Banks generally don’t want to offer these because of the uncertainty of getting their money back, which is why private lenders often step in to fill the gap.

7. Construction Loans

These loans are offered to those who want to build a residential or commercial building. Banks are generally not interested in these properties because there is no proof of viability of the project. Hard money lenders, on the other hand, are willing to invest in these.

If you want to invest using private money, then understanding the above terms is very important because it will help you choose the most appropriate solution. Remember that hard money lenders want to make a profit, which means you must show them that you are an investment worth making and a risk worth taking.

Hard Money Mortgage?

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Are you interested in a hard money mortgage? These asset-based loans could make a big difference to you if you’re hoping to pursue your real estate dreams. There are some things you should know about hard money loans before you sign on the dotted line.

What are Hard Money Loans?

Let’s start with the basics. You may be wondering what exactly is a hard money mortgage. Well, this is an alternative form of funding that’s oftentimes easier to secure than traditional mortgages.

Residential hard money lenders lend money to home buyers not based on their credit scores and credit history. They look at the value of their property. So, oftentimes hard money loans involve a private investor lending money to a buyer who isn’t able to secure a more traditional loan.

You often see hard money loans in cases of foreclosures and house flipping. Chances are you know someone or have at least heard of someone who is involved in home flipping. Just flip through HGTV and you’ll see lots of people who are making it big by buying run-down properties.  Then they complete the renovation before selling at a profit.

If that sounds like something you want to do, then hard money mortgages may be in your future. Traditional forms of funding can be good, but you have to qualify for them. The application process for these loans can be tough.

After all, banks and mortgage lenders need to look at your credit score and borrowing history to evaluate if you’re worthy of receiving a home loan.

That’s why hard money loans can be good. The process tends to be quicker with a better rate of acceptance, as long as you have that property value to back you up.

Of course, as with anything in life, there are some factors of hard money loans to think thoroughly about before jumping to any major conclusions.

What You Need to Know Before Getting a Hard Money Mortgage Loan

Before you secure a hard money mortgage, you need to think about your real estate and funding options. According to the U.S. Census Bureau, the median sales price of new homes sold in July 2019 was $312,800; the average sales price was $388,000.

You want to make sure a potential hard money loan would make sense for you financially.

Notable financial expert Dave Ramsey  said, “You don’t want to have so much money going toward your mortgage every month that you can’t enjoy life or take care of your other financial responsibilities.”

This concept certainly applies to hard money mortgages. Before you get such a loan, you want to ensure you can pay it back comfortably.

Due to the loan conditions, the interest rates on hard money loans are higher. Interest rates may be more around 8-11 percent depending on the lender. Most borrowers are looking to sell their property at a profit within five years. That way they can pay back the loan without too much interest.

Hard money lending usually has an LTV, or loan to value within 65 to 70 percent of the property’s value. With this low LTV rate, the lender can be assured that the property will sell for at least the amount owed against it in the case of a default. It’s pretty rare to find a hard money lender who will borrow you more than 70 percent.

What Should You do Next?

So, what does this mean for you? Hard money lenders are eager to guarantee that the property will be valuable enough to pay off an existing mortgage in case anything happens. Cross collateral for the hard money loan is one way the private hard money lenders can protect their investments.

You have to remember the increased interest rates while understanding that these higher fees are justified because of the risk factors. Private lenders need to protect their investment, the same way you need to protect your property.

If you have been struggling to secure a mortgage or you want to get into home flipping, hard money mortgages present a great opportunity.

If you are aware of the fees and interest rates associated with this loan hard money loans can help you tremendously. Speaking to a reputable hard money lender is a great place to start.

Sources: (Quote) https://www.brainyquote.com/quotes/dave_ramsey_520304?src=t_mortgage

“Dave Ramsey Quotes.” BrainyQuote, Xplore, https://www.brainyquote.com/quotes/dave_ramsey_520304?src=t_mortgage.

(Statistic) https://www.census.gov/construction/nrs/pdf/newressales.pdf

Cornish, Cheryl, et al. “New Residential Sales.” Census.gov, 23 Aug. 2011, https://www.census.gov/construction/nrs/index.html.

 

 

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Why Use Hard Money Private Lenders?

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So, you’ve seen a house that could use some work and you think that you could make something of it. The trouble is, you simply don’t have the cash on hand to buy it. What’s your first thought? See if you can get a loan. If that’s refused, what do you do then? For some people, they don’t even consider a traditional loan, they go straight to a hard money lender.

What is that exactly? It’s a non-traditional lender that can loan you the money with different terms and conditions than you would receive from a bank or normal credit institution. If this isn’t something that you’re familiar with, not to worry – you’ve come to the right place.

What is a Hard Money Private Lender?

A hard money private lender is someone who provides you with credit when you offer property as collateral. They are private investors, either individuals or groups, and they usually have plenty of experience in offering out these loans.

They don’t finance loans with money from deposits, which is how other traditional institutions do it, such as banks and other credit bureaus.

Hard money private lenders are business people and risk-takers, yes. However, they have private funds, which they use to provide quick financial loans. Due to the fact that it is private money, you can skip over most of the regulatory stuff that you’d have to go through if you applied for a conventional loan.

Why is this beneficial for them? Because they earn a lot from it. The loan terms are short, the interest rates are high and they have property as collateral should anything go wrong.

They clearly live by the words of Rich Dad, Poor Dad author, Robert Kiyosaki “As they say in the world of finance, ‘I’ll give you your price if you will give me my terms.'” It’s basically win-win for a hard money private lender.

However, most hard money private lenders like to build relationships and they often lend to the same people over and over.

Hard money lending is big business, with recent reports showing that there are 40% more private lenders now than there were just three years ago.

What do People Use a Hard Money Loan For?

A variety of things. As mentioned, it’s often to do with real estate. Real estate investors often lend to each other and they make big bucks using hard money loans. Here are the things that hard loans are most commonly used for:

House flipping

If you want to earn some money quickly, then one of the best ways to do it is by flipping a house. Real estate investors keep an eye on foreclosures or short sales, and when they need the cash, they simply skip the banks entirely and go straight to a hard money lender.

Development of Property

Smaller developers often use hard money loans when they have found a plot of land or old buildings to develop. In this case, it’s important that the developer either carries out the construction themselves or has a very close relationship with the construction team, as timelines need to be pretty quick in order to turn a profit and pay off the loan.

Personal loans

It’s not as common but some people do use hard money lenders to get access to cash quickly. They can take the loan against their property, but need to keep strict control of their finances so that they can pay off the loan. One way this can work is when homeowners to get a hard money loan to do some renovations to their home and then apply for traditional re-financing with their home revalued at a higher rate.

Why Should I Choose a Hard Money Private Loan?

The pros of using a hard money private lender are as follows:

* Avoid bank limitations

*Fewer requirements to fulfill – less paperwork overall

* Get cash much quicker than through traditional financing institutions

* Shorter term loan, so once you’ve made a profit you can pay off the loan and move on to your next investment.

Overall, as long as you are confident that you can pay off a hard money loan and have a plan in place to control your budget and finances, it can be a brilliant solution to get a hard money loan, especially if you are starting out as a real estate investor.

If you’re looking for reputable hard money private lenders near you, you can search here.

Sources:

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

http://www.quoteswise.com/robert-kiyosaki-quotes-6.html

New Hard Money Lender In Arizona

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People in Arizona will be happy to hear that a new hard money lender is offering its services in the state. Barrett Financial is a very experienced mortgage broker, and this is the first time they have ventured into hard money lending in this state, something they have long been working towards.

We are hard money lenders in Arizona that are extremely trustworthy, efficient, and experienced. If you need hard money for your next commercial property acquisition, construction project, fix and flip, or buy and hold property in Phoenix let us work with you!

This lender is focusing specifically on those people who cannot meet the stringent application requirements of conventional financial institutions such as banks. By offering people in Arizona their new hard money programs, Barrett Financial hopes that they are able to play a role in getting more real estate projects off the grounds. They are interested in those projects that banks have said no to.

The lender is one of the best known brokers in Arizona, offering a wealth of different types of loan programs.

The right type of mortgage for you depends on many different factors. A 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes. The best way to find the “right” answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

Considering the company’s focus on offering such a variety of loan programs, it is perhaps unsurprising that they have now also ventured into hard money lending. The company has the necessary resources to ensure that any prospective borrowers can be matched to the best source to find the funds. They will focus in particular on people who are self-employed, as they understand that these individuals generally earn a solid income, even if their tax return shows a small net income.

At the same time, Barrett Financial wants to work with those whose income does not come from traditional employment, which makes it very difficult to qualify for any type of loan, including hard money loans. Barrett Financial understands the obstacle bank statements pose for these types of people, but also know where the solutions are.

The ability to qualify for an Arizona hard money loan depends on a range of different criteria. Some of those include the ability to provide a solid collateral, insurability, and credit history. Barrett Financial, however, believes that somebody who has a poor credit score does not have to be someone who is automatically turned down for financial products, particularly as they are related to business or real estate. This is a mentality shared across the board with all employees at Barrett Financial, and this enables them to offer all their clients the most suitable solutions.

The company’s headquarters can be found in Phoenix, AZ and they are a private, hard money funder. They have a wealth of experience in all areas of real estate, including bridge loans, fix and flip loans, refinancing, and more. They focus on ensuring that customers are efficiently and quickly provided with the financial solutions they need, working only with lenders who are trustworthy and safe. Barrett Financial is well-established in Phoenix and their venturing into hard money loans is something they have been preparing for, for some time now. The company’s goal is to make Arizona’s real estate market the strongest in the country.

Looking At The Facts And Myths Surrounding Hard Money Lending

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When people want to borrow money in an easy, simplified way, then they may want to consider getting a loan from a hard money lender. People are starting to see the benefits of private loans, particularly with how quickly they can be arranged. Nevertheless, some skepticism is also in order.

Hard money loans can be quite risky. They are very different from bank loans, not in the least because they do not follow the Banking Regulation 2017.

Over the past several years, many regulatory initiatives in the United States derived from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was enacted in 2010 in response to the financial crisis of 2007-2009. Many provisions of the Dodd-Frank Act focus on the largest financial institutions due to their perceived role in causing the financial crisis and the perception of such institutions as ‘too-big-to-fail’. The new Trump Administration is expected to seek to modify or repeal certain aspects of the framework implemented under the Dodd-Frank Act.

That said, while it is certainly true that hard money lenders don’t have a standardized process and that they charge high interest rates, they also have some key advantages. This is why it is important for people to be aware of the myths and facts surrounding hard money loans, thereby providing them with an opportunity to make an informed decision.

MYTH: A Hard Money Loan Costs a Lot of Money

FACT: It is certainly true that a hard money loan comes with a hefty price tag. However, it also offers a fantastic opportunity for a high return on investment. Usually, banks and other financial institutions will only provide people with a very low loan-to-cost ratio.

The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction used to compare the financing of a project as offered by a loan to the cost of building the project. The LTC ratio allows commercial real estate lenders to determine the risk of offering a construction loan. Similar to the LTC ratio, the loan-to-value (LTV) ratio compares the construction loan amount to the fair-market value of the project.

Indeed, the LTC is usually between 50% and 65% of the cost of the project. In other words, a developer has to be able to find between 35% and 50% of the funds required somewhere else. In commercial real estate in particular, this could mean millions of dollars.

In contrast, a hard money lender can offer an LTC of between 80% and 90%. This means that there is a far smaller gap to cover. It is true that the interest rates on a hard money loan are a lot more expensive. However, it is also a short term loan, which means that it is easier to obtain a quick return on investment.

Borrowing money is about doing the math. Borrowers must calculate the cost of the loan, which includes the total interest they will pay and the equity they must somehow raise themselves, potentially incurring more interest, and deduct this from the money they will eventually make when their development project is over. Because of the short time frame of a hard money loan and the fact that so much less equity will have to be raised, it is very common to see a hard money loan cost less overall than a traditional loan.

MYTH: You Lose a Lot of Control when You Take out a Hard Money Loan

FACT: It is common for those who want to take out a traditional loan to have to work together with partners in order to raise the additional equity required for the project. What this means is that the lender no longer invests in a piece of property, but rather in an LLC.

Simply put, an LLC is the least complex business structure. Unlike an s corp or c corp, the structure of an LLC is flexible. Starting an LLC also gives you the perk of pass-through taxes, limited liability (obviously), and legal protection for your personal assets.

However, bringing in a partner and forming an LLC often means having to give up partial or even full ownership to the partner.

A hard money lender invests not in an LLC but rather in a property. This means that the borrower remains as a complete owner.

MYTH: It Is Much Easier to Work with a Bank than with a Private Lender

FACT: Just because traditional lenders like banks have a standardized process, they are not necessarily easier to work with. In fact, hard money lenders are often far more flexible and their process is usually highly streamlined as well. If the project is a new development, then hard money loans are generally far more effective. This is because federal regulations make it difficult for traditional lenders to invest in construction.

The commercial real estate market continues to be highly volatile, which means higher reserves have to be held against a project. Additionally, banks must follow the rules and regulations set by the Federal Deposit Insurance Corp..

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

What this means is that the vast majority of construction investors will not have the 1099 income or consistent tax returns they need to qualify. If a loan application is approved, it will be highly conservative. Large banks are concerned about exposure and avoid construction loans as much as possible, preferring to work with customers they already have ties with.

A hard money loan, by contrast, doesn’t have to follow these regulations. While they can also be conservative, their processes are usually much easier to follow and their criteria easier to meet. Indeed, a hard money loan can close in as little as 30 days. Some hard money lenders have such a streamlined process, in fact, that they can have the funds available within 48 hours of receiving a complete application package.

How Can Hard Money Loan Help me with Real Estate Investment

How Can Hard Money Loan Help me with Real Estate Investment

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A hard money loan can be a real game changer if you're hoping to get into real estate and expand your investment portfolio.

An alternative to traditional funding, hard money loans are asset-based. This means borrowers receive loans based on the value of their property. In a country where the real estate market is rising – there were 679,000 new single family homes sold in the first quarter of 2019 in the United States – many people want to cash in on this opportunity. In the last few months, the country's spending on private residential construction work surpassed an estimated $507,231 millions of dollars, and a considerable portion of that could be attributed to home renovators and flippers. Hard money loans offer a great chance to get in the housing market. This is true even if your borrowing history is less than perfect.

What are the Benefits of a Hard Money Loan?

Investing in real estate can be a fantastic and fulfilling endeavor. However, in order to do so you will need some capital. You can't invest in properties if you don't have the funds upfront. That's where hard money lending comes into play. There are many benefits associated with this form of funding. Essentially, hard money loans are awarded based on the value of the property you're purchasing, rather than your credit score and credit history. Generally speaking, people who have been rejected on loan applications through more traditional funding sources such as big banks and mortgage lenders may see success with hard money funding. The application process tends to be easier and more straightforward.

Other benefits of a hard money loan include a quick approval process. If you find a property that you're eager to invest in, you won't be waiting around long once you submit your application for hard money funding. You're much more likely to be approved for this loan compared to asking the bank or a mortgage lender for money. There's plenty of people out there just like you who have wanted to make some exciting real estate moves but have found themselves stuck financially. Hard money loans can be a solid solution that gives you the financial freedom to invest in the right real estate project for you.

Why do People Choose Hard Money Loans?

Last but certainly not least, another reason why so many people are enthusiastically turning to hard money loans is that there are less requirements and restrictions on this funding. You won't have to answer a million questions about your financial situation and your past credit mistakes. Instead, hard money lenders will be looking more closely at the property you plan to buy. The value of this property is very important. Hard money lenders just need to make sure that your investment makes sense. They will also want to know that you will be able to pay back the loan.

How Can You Get a Hard Money Loan?

Hard money loans are extremely helpful for those who want to get into real estate but may not have access to traditional forms of funding. Buying run-down properties and flipping them for a profit is thrilling and rewarding. This is especially true when you get your business blossoming with opportunities coming at you left and right. Whether you're just starting out in the real estate market, or you're a veteran who is ready to try something new, hard money lending could be for you. It's understandable that you may have some more questions, and luckily there are some fantastic hard money funding experts out there who would be happy to help.

In order to secure a hard money loan for your real estate investment, you should search for lenders in your area. Scheduling a meeting with these lenders is a good idea, as you can then have all your questions answered and get a better understanding of what you can expect with a hard money loan. You will also need to provide details on the property you wish to use the hard money loan for. What is the current value of the property and what work are you planning to do to the property to sell it for a profit in a few years time? By demonstrating your real estate plans, you'll be likely to receive approval for this hard money loan that could help you tremendously.

Who Offers Hard Money Loans?

There are some great hard money lenders who are trustworthy and fair and they offer an alternative avenue to funding. These are the types of funding companies that you should want to work with. As with anything, real estate is a huge investment, and it's important to make the best choice for you the first time around. It's likely that hard money loans are the ideal option to achieve your real estate ambitions.

What Else Should you Know?

As with any sort of financial agreement, you should do due diligence and research all your options before signing on the dotted line. While there are so many advantages associated with hard money funding, you also need to be aware of any possible drawbacks that could affect you.

This mainly revolves around interest rates, which are higher than traditional forms of funding. While a mortgage from the bank may offer interest rates somewhere in the range of 3-5%, with a hard money loan you'll be looking more so at interest rates around 8-11%. While these rates can of course vary depending on the lender, it's typical for borrowers to pay more interest on a hard money loan due to the conditions of funding. That being said, this won't matter too much if you stick to your plans of flipping the property and selling at a profit in a few years. Just remember that the interest rates will be higher, and this should factor into your financial planning. You'll also should be pretty sure that your plans for a profit will materialize, so that you end up in the black.

If you're ready to move forward with your real estate hopes and dreams, the next step is to contact a reputable hard money lender to get started on your application. Your next real estate investment could be much closer than you think!

Sources: https://www.huduser.gov/portal/ushmc/quarterly_commentary.html

https://www.census.gov/construction/c30/c30index.html?#

hard money Definition

Hard Money Definition

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What comes to mind when you hear the term ‘hard money’? This term can be used in a number of financial contexts. With the coming of financial technology and increased access to banking for most of the population, hard money is not as popular as it was some decades ago. Interestingly, even with these developments, new reports show that hard money lending is on the rise. Before going into details of how hard money works and what good it is in the market, let’s slice up its definition.

What is Hard Money?

Hard money is used to define a funding stream from a government agency or a donor organization. In this case, it is used to describe a series and scheduled payments as opposed to a one-time award. In another hard money definition, it is just what it sounds – physical currency.

In another definition, hard money is circulating currency whose value ties directly to the value of a specific commodity. Think about notes or coins from precious metals such as gold, silver, and platinum. A good example of it is the Gold Standard.

You can also define hard money as the opposite of soft money. Here, it is perceived as physical cash or fiat money used to make payments, while soft money is either credit or any other money that is not physical or fiat and which is not backed by any commodity. You can also look at soft money as indirect contributions or fees for financial services such as brokerage fee.

The most important definition is in lending. In a lending context, it refers to a  loan that is backed by a physical asset. Unlike traditional lending that considers credit rating and ability to pay, this loan is based on collateral as the lender considers the value of property vs the amount requested.

Let us focus on hard money definition in terms of lending.

What is it Good for?

What is the first thing that comes to mind when most people hear hard money lending? Some people envision a ruthless lender giving out money at sky-high interest rates, or a scam posing as lenders whose interest is in getting the property at a cheaper price from unsuspecting borrowers?

On the contrary, these loans are a fully-fledged industry. According to Forbes, flippers control about $56 billion markets. Private lending stakes about 5.6% of this market share. In 2016 alone, flippers borrowed around $18 billion. It is estimated that a third of these were financed through local land deals by getting hard money loans.

There is a growing demand for credit than conventional banking and mortgage industry can meet. So investors, particularly real estate investors and small businesses take advantage of this gap through private lending – hard money loans.

Hard money loans are good for;

  • Small businesses that are overlooked by conventional banks and lenders
  • People with poor credit rating
  • Real estate investors that need quick cash to take advantage over a deal
  • Construction and land loans
  • Fix and flips

Basics of Loans

In lending can be described as asset-based financing where the borrower gets a loan secured by a property. While the reputation of the borrower matters, hard lenders are solely interested in the value of the property which serves as collateral.

Interest rates for the loans range between 7% and 35% depending on the need, risk, and terms of lending. Hard money loans carry a higher risk to the lender because most borrowers have a low credit rating. This is why their interests are higher. In the U.S., this borrowing is regulated and strictly governed.

Hard Money Loan to Value Ratios

Loan to Value (LTV) is the ratio used to determine the amount the lender will extend to the borrower. It is simply the ratio of the loan amount divided by the value of the property. Hard money lenders should loan up to 65% to 75% of the market value of the property. Some lenders use the after repair value (ARV) to estimate the value of the property. This increases the interest rate instead since it is riskier.

Hard money loans are popular among business people especially in real estate and small businesses. They allow you to save your business during a crisis or take advantage of a quick business deal, especially in property deals. When it comes to hard money definition, we will help you look at lending from all angles.

Sources

https://www.forbes.com/sites/forbesrealestatecouncil/2017/12/05/how-the-rise-of-private-lending-is-reshaping-the-mortgage-market/#6ceb95f452ae

https://www.entrepreneur.com/article/218880

https://www.sba.gov/business-guide/plan-your-business/fund-your-business

https://www.educba.com/hard-money-vs-soft-money/

 

 

 

Big Changes In Mortgages As A Result Of Private Lending

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There are quite limited options available to people who own real estate if they wish to refurbish or if they want to purchase real estate that requires refurbishing. Mortgage lenders do not usually like to take a gamble on a property’s potential worth sometime in the future. The result is a growing demand for private lenders who would be happy to provide fix and flip loans, bridge loans, and refurbishment loans.

Many private lenders are people who were in the real estate investment market themselves and who realized that there is a gap in provision because they themselves experienced to difficulty of getting funds. What this means is that these lenders have a true understanding of the needs of the market and, therefore, have the potential to deliver a relevant and fit for purpose service. So popular are their services now that their market share seems to be growing rapidly.

In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent.

Truly determining market share is difficult, however, because the private lending market is potentially huge. One way to look at it is by determining the number of properties that are refurbished and sold on. Another way is to simply determine the percentage of properties that are fix and flippers.

Fix and Flips Across the Nation

According to the latest 2016 Year-End U.S. Home Flipping Report, which looked at counties that are home to around 80% of the country’s population, 193,009 condos and single family homes were flipped in that year, defining a “flipped” property as one that is bought twice within a 12 month period.

ATTOM Data Solutions, curator of the nation’s largest fused property database, today released its 2016 Year-End U.S. Home Flipping Report, which shows that 193,009 single family homes and condos were flipped – sold in an arms-length transfer for the second time within a 12-month period – in 2016, up 3.1 percent from 2015 to the highest level since 2006, when 276,067 single family homes and condos were flipped.

It has also been estimated that if the other 20% of the market was included, there would be a total of 300,000 flipped properties in 2016. Considering that the average price is $189,000, the market is worth $56 billion. That is a huge amount of money, which certainly makes this market very interesting to lenders, particularly because they know that traditional banks aren’t interested in this. There is a huge opportunity for anyone who has the private funds available.

It has also been estimated that around a third of the flips in 2016 were financed. This means that around $17 billion was borrowed in 2016, a significant amount of money. While it is certainly true that determining exact market share is almost impossible, even accounting for standard deviation and mistakes, this share is significant.

Our industry’s uniqueness makes it challenging to analyze market share. We don’t have the standardization of the traditional mortgage market, where most deals flow through a handful of secondary market players who freely share loan-level, portfolio-level and industrywide data.

Unique Characteristics of the US Real Estate Market

The real estate market in this country continues to be unique. There are entire areas where there are far more home buyers than what there are properties for sale. Flippers must act very quickly if they are to find a deal, even if the kinds of properties they are interested in require substantial refurbishment. Unfortunately, traditional lenders, even if they are independent or a credit union, take several weeks before they can close on a loan, and those are weeks flippers simply do not have.

Flippers like to find tricky deals, although these are high risk, because they also have the potential for a huge payout. Flipping is not just about applying a new coat of paint and laying down some new flooring, which are things that anyone can do. True flippers purchase properties that are in a state of disrepair and require substantial modernization and renovation. They must also consider environmental problems, rewire the electrical system, put in new plumbing, and so on. These are the deals that flippers look for, because they are the deals that most people don’t want to take on. Naturally, the banks are reluctant to work with these properties, again increasing the need for a private lending alternative.

Hard Money Lenders Focus on Fix and Flip

The vast majority of hard money loans focus on fix and flip properties. However, others are used for sort term refinance, development, land acquisition, construction loans, and bridge loans. While this is not a huge portion of the overall hard money lending market, it is another piece of the overall financial pie. It looks like growth in the private lending market, therefore, will continue to grow, particularly in the suburban markets where there are many infill projects and revitalization projects.

So long as there are investors who are happy to diversify their portfolios and take risks because of the potential for a high return, private loans will continue to be available. So much so, in fact, that some are calling for private lending to become an official alternative to mortgages. Not just that, many financial advisors now consider it as an option to diversify the portfolio of their clients. Real estate has always been a solid investment, after all.

There is one caveat, however, and that is that many people now think that it is easy to fix and flip. There are many reality TV shows that make it look like the easiest and most fun job in the world. What these show fail to indicate, however, is that there are associated difficulties that can make a project turn sour. This has increased the risk for private lenders, who now have to spend slightly more time in determining whether a request for funds has been made by those who are experienced in this particular field and know what they are doing, rather than simply someone who has watched HGTV’s Fix or Flop series.