Hard Money Lenders Provide Loans Even To Investors With Poor Credit
Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.
Hard money loans are considered high risk and you are dealing with investors who want a high return on their money. That means your interest rates will be very high and a hard money loan will be a very expensive way to borrow money.
Hard money lenders, unlike the big institutional lenders, charge high interest rates usually above the market rates as they are experienced investors looking for good returns. These hard money lenders, usually charge 5 to 10 percentage points higher interest rates than the private money or conventional lenders. Hard money lenders also charge 'points' (or pre-paid interest) on the loans, which makes them a rather costly option when borrowing money.
So, on the plus side, hard money loans are generally worth approximately 65-70% of the after repair value (ARV) of the property in question. This is beneficial because it allows you to obtain the necessary cash to finance renovation costs as well as the purchase price. This means you can potentially get into a deal with little to no money down if the after repair value to cost ratio is high enough.
Another benefit or hard money loans is that instead of lending to you based on your creditworthiness or character, hard money lenders will lend based on the security of the loan. So, while you may get better rates elsewhere, the flexibility of hard money can make it a very attractive option for investors with poor credit or loan serviceability or even for those that don't have the time to wait for approval from conventional lenders.
Where should you look to find hard money lenders? The first place is in the "money to lend" pages of your local newspaper. The second place is at a meeting of your local real estate investing association. Local hard money lenders are often attending to solicit new business. Eventually, do not forget to check on the internet: just search for "hard money loans" or "hard money lenders."
Here's a layman's guide to borrowing hard money loans. Third-party lenders who charge interest rates higher than the prevalent market rates for lending are called hard money lenders. The interest rates charged by them are typically 5-10 percentage points higher than the conventional lenders. They are beneficial because they allow you to obtain the necessary cash flow to finance renovation costs which may lie in your future. They are also notorious for charging "points" on a loan which is essentially a pre-paid interest on loan. They will often attend to solicit new business. Finally, don't forget to check online - just search for "hard money lending".
Published May 18th, 2007
Filed in Business, Career, Real Estate
