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What
are hard money loans? |
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Hard
money loans are often used as a temporary solution to obtain
a re-finance for a commercial, investment or residential
property. Lenders often fund hard money loans in situations
where quick, available funding can help to make a deal
work. It is an excellent option when conventional bank
financing is too slow, credit scores are low or a project
has risks that conventional lenders do not wish to assume.
Hard money is a privately funded loan most commonly used
for the purchase or refinance of real estate. Hard money
loans are "bridge loans". They 'bridge the gap'
between the time funding is required and profitability,
sale of the property, or the securing of a conventional
(bank) mortgage.
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Borrowers interested in purchasing
commercial, industrial, or investment residential
real estate property may find that credit scores,
legal obstacles or conditions related to the property
itself (such as incomplete buildings, damage, etc.)
may prevent standard funding from banks.
In cases such as this, hard money loans offer the perfect short-term solution.
Hard money funding provides time to cure whatever situations exist so that the
property can be sold or until conventional permanent funding can be obtained.
By
far, the most often requested type of hard money loan is a loan
for the purpose of improving commercial or
investment residential properties. The proceeds are used
to improve the property so that it may be used, leased,
or re-sold for a profit.
Hard money can work well in
this situation because of the quick turnaround funding
time and flexible lending criteria. Purchasing an existing
company with hard money funding can be an effective use
of the leverage provided by hard money loans. Individuals
seeking to buy an existing business must provide documentation
showing the costs, profits and expected income that can
be used to re-pay the loan.
Certain lenders specialize in hard money loans for already
completed, income-producing properties. They can become
involved in a construction project when it is at least
80% complete or better. At that point, the lender will
collateralize the property before a bank can step in
with a long term or take out loan - in its current unfinished
state, often without occupancy permits. They will bridge
the gap between completion and profitability.
Most hard moneylenders secure funding for projects ranging
from $500,000 to over $20 million. These loans have highly
flexible loan terms for up to three years. Typically,
there are no pre-payment penalties. Loan-to-value can
range up to 65%. Interest rates vary but can be in the
range of 9.9% plus 3.5 points for qualifying projects.
Once your application is processed, the average closing
time with most lenders is two weeks. However, in certain
circumstances, if you have a hard money deal that fits
certain terms and rates and is within specific loan products,
you can submit your information and obtain an even faster
response.
All hard-money lenders are different. Most hard-money
lenders will usually consider income producing properties
such as apartments, condo/co-op conversions, retail/shopping/strip
centers, mixed use properties, industrial, office buildings,
hotels/motels, medical, mobile home parks and restaurants,
as well as non-income producing properties such as land
acquisition, development and construction, bank workouts,
foreclosures and bankruptcies.
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