Hard Money Lenders and Private Money Lenders for commercial real estate investments
What is a hard money loan? A hard money loan is a loan given to a real estate investor which is underwritten based off the value of the asset that it is secured by. An asset based lender also known as a hard money lender will focus primarily on the value of the property rather than the net worth or income or credit of the borrower guaranteeing the loan. Whereas conventional loans are 30 year terms, hard money loans are short 1 to 3 year bridge loans designed as a short term solution for the real estate investor to acquire the property or refinance the property until he sells it or refinances it with a permanent loan in the near future. Why should you choose a hard money loan over a conventional loan? There are many reasons but the most important ones are the following: (1) Quick Closing Time Frame– Conventional banks can not close a loan in less than 45 days on a single family residential property due to the disclosure and TRID guidelines to follow and a conventional commercial lender will take any where between 60–90 days to finance a commercial loan. However, a hard money loan will close within 7–14 days. (2) The Property Requires Rehab or Repairs– Conventional banks will not lend on uninhabitable properties that need repair. Therefore a real estate investor will use a hard money lender to purchase, rehab and fix the property in order to qualify it for a conventional loan. Another example would be a commercial property that has no tenants or has a very low occupancy rate… a bank won’t loan until the property is leased up or at least has some pre-lease traction. (3) No Income & Credit Requirement – Conventional banks rely on a borrower’s credit score, income, and DSCR/DTI. What are the interest rates involved in hard money loans? Hard money loan rates generally range from 8% all the way up to 14%. The rates vary due to a number of factors: (1) loan to value ratio (2) borrower’s credit score & income (3) the property state and location (4) Equity in the property What are the fees for a hard money loan? A loan origination fee of 2% to 4% of the loan amount will be charged at the closing and taken out of the loan proceeds. Can the loan fees be paid from your loan proceeds? Yes. The fees are typically paid from the actual loan proceeds. Who a Hard Money Loan is Right For? Hard money loans are the perfect fit for short-term investors including fix and flip, and other real estate investors who purchase, renovate, and sell a property within 12 months to eighteen months. They’re also right for long-term investors who purchase a house in bad condition, renovate it, and lease it out. In order to get Pre-Qualified for a Fix and Flip Loan, Hard Money Loan, Commercial Bridge Loan, or Rehab Loan contact Capital Funding Financial.