Who knows the term hard money?
Hard money is private money lending, money you will receive from individuals that will loan you their money against your real estate.
The hard money lender is the bank and the bank will loan you their money and put a lien against your real estate.
What is the difference between the hard money lender's programs and the bank across the street?
1. Hard money lenders can help investors with large loan amounts, while banks will makes it very difficult on the borrower to loan these large amount. So the loan would probably end up with an insurance company to loan you the money and the requirements are high.
2. Hard money lenders can fund any loan within a week, while for the banks it will take at least a month or even more.
3. Hard money lenders will ask for very little documentation, while the banks would ask for almost everything you have like taxes, income, assets, business license. As you can tell already the banks will definitely want to see more than a hard money lender to loan you some money.
4. Hard money lenders have guidelines but they can make exceptions without processing it through a whole underwriting team, while the bank need to go through different departments,underwriters and processors just to make an exception.
So to get a hard money loan is much easier then to get a loan from a bank because of the whole process.
The banks are big companies and big companies have many different rules inside their companies, so to get an exception for these rules is almost impossible.
That is why many investors would rather go with a hard money lender.
So now you're probably thinking what is the catch with the hard money lenders?
OK, so let's talk about all the reasons why you should not consider applying for a hard money loan:
1. Hard money lenders for their services will charge you 4 to 9 points on the loan,while the banks will charge you only 1 to 2 points.
Example: If you have a loan amount of $1,000,000 and your hard money lender will charge you 5 points up front then you will pay $50,000.
The bank will charge you 2% which is $20,000, that is a bit difference but under different circumstances for some people it's still a great deal.
2. Because of the fact that hard money lenders will loan you money without showing your credit history and your income they will set the loans interest rate between 9% to 15%.
The banks will set your loans interest rate between 7% to 10%, again that is a huge difference if you're thinking about it but for these people that want the hard money loans it's still a great deal.
You have to understand that most investors or home buyers can not qualified today with banks for any type of Loan.
Hard money lenders can get you the deals you want (foreclosures, reo's) without even thinking about showing all the unnecessary documentation.
All you need to have is some money in your pocket if you're purchasing, and if you're refinancing than you need enough equity since the hard money lenders will probably go up to 65% at the most.
Also to find good hard money lenders it's not so hard, it's actually very easy because there are many private investors that are looking for real estate properties and notes to buy so they can make their points up frond and of course the high interest rate.
If you will think about it, it's much better then put the money in the bank.
Example: If a hard money lender put $1,000,000 in the bank and the bank will pay him 5% a year- while if he will loan the money to an investor that want to purchase a property or to refinance a property, he will charge his 5 points and he will get 15% interest rate on his money, that's a big difference.
Good luck to you all investors out there.
Yanni Raz |
