Hard Money Lender Real Estate
Hard money lender real estate is a term used amongst private investors who offer real estate financing. Similar to home mortgages, hard money loans are secured by real property. The primary differences between conventional and hard money lending is the loan to value ratio and rate of interest charged against the note.
Hard money lender real estate loans can help borrowers with bad credit obtain financing. Real estate hard money loans are not intended to extend for 15 or 30 years like conventional mortgage loans. Instead, hard money home loans are intended as short term financing; lasting six months to two years.
Private investors and real estate investment groups are the most prominent source of hard money lending. Also known as bridge financing, hard money loans allow borrowers to buy real estate when traditional lending sources are unwilling to assume the financial risk.
Bad credit loans give borrowers the opportunity to prove they are creditworthy. Borrowers who obtain bridge financing should pay installments on time and refinance mortgages through a conventional home loan lender as soon as possible.
Hard money loans are often used to finance commercial real estate that does not conform to conventional lending criteria. This might include buildings that are not completely built or those which are not in marketable condition.
Seller carry back mortgages are a common form of hard money real estate financing. Sellers provide all or a portion of financing to qualified buyers for a year or more. When sellers carry back a portion of the loan, borrowers must pay the difference with cash or obtain funds through a traditional lender.
Hard money financing is often used to fund properties for house flipping. Investors who rehab houses and can quickly sell the property will sometimes obtain bridge loans through private investors or real estate investment groups.
Hard money real estate financing is generally confined to 60- to 70-percent of the current market value. If property is valued at $300,000 the bridge loan amount would fall between $180,000 and $210,000.
The interest rate charged against hard money loans is subject to usury laws. Interest rates typically range between 12- and 21-percent. Most hard money lenders include a default rate in real estate contracts allowing them to increase the rate of interest when borrowers do not comply with payment terms. Default rates typically fall between 25- and 29-percent.
Some hard money lenders include a prepayment clause allowing them to charge borrowers a penalty if the loan is paid off early. Prepayment penalties are in addition to closing costs associated with mortgage refinancing. Make certain to read the Truth in Disclosure statement and understand contract terms. Consult with a real estate lawyer if necessary.
Be aware of hard money lenders who charge exorbitant loan application fees. Unfortunately, scammers exist and will take advantage of naïve and trusting individuals. It is imperative to investigate real estate investors and investment groups offering bridge loans.
The Internet is a good source to locate and investigate hard money real estate lenders. Additionally, our real estate investment article library contains valuable information and resources to buyers, sellers and investors. New articles are added on a weekly basis, so take a moment to subscribe to our mailing list.