A hard money loan is a short-term bridge loan that is used for acquisitions, turnaround situations, foreclosures and bankruptcies. Interest rates, although high on business hard money loans, are less costly than taking on financial partners or losing the real estate opportunity altogether.
Hard money real estate loans are ideal for borrowers who are unable to obtain funding through a conventional source. The properties or the borrowers are often clouded by legal or operational problems. Business hard money loan lenders can often help solve the problems and get the property repositioned for a conventional refinance.
A bridge loan is an immediate, short-term loan, one to sixty months, usually made in anticipation of intermediate or long-term financing. Pay back the bridge when permanent financing is in place with no prepayment penalties.
Bridge loans "bridges" two different types of cash gaps. The first "bridge" is a loan that institutional banks refuse to approve. The second "bridge" is for the individual investor or company who is between deals and requires immediate, short-term funding until a traditional loan is issued.
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Hard Money Loans and/or Bridge Loans are available for any business interested in acquiring working capital, business finance, business acquisition, start-up loans business needs or any other business related funding. Typical assets that are used are commercial real estate or other collateral-based assets you may own. Depending on the type of commercial lending you require some transactions can be looked at without commercial property being involved.
Hard money loan terms are typically no longer than two to three years. The reason is simply that a longer term becomes too expensive for the borrower. With hard money loan lending, the goal is to have the borrower in and out of the hard money loan as quickly as possible. The hard money loan lender will analyze each transaction during the underwriting process for "good risk" - to be sure that a property can be repositioned for conventional refinancing or sale within one or two years.
The amount of equity needed for a hard money loan depends on the quality of the business plan and the flexibility of the hard money loan lenders themselves. Depending on the lender, both business and personal asset equity may be used.
Hard money loans are distinctive in structure and require different underwriting criteria than traditional real estate funding. Whilst backed by real estate they are riskier for the funding institution but sometimes it's your only funding option. Hard money loans can help projects where capital is needed quickly or if the project is hard to fund through more traditional funding sources.
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Hard money loans are loans intended to be used for a short period time between the initial requirement for funds and a permanent, usually less costly, financial solution. The term hard money refers to money that is lent based on the value of real estate. Hard money loans carry higher costs and shorter terms than traditional bank mortgages and are used for specific business purposes. On the positive side, hard money loans collateralized by real estate are also characterized by their ability to be completed and funded in a very short period of time and with relatively little paperwork and preparation efforts.
A direct lender is not a broker. This is the company that actually writes the check and funds the loan. There are several ways that direct hard money loan lenders are funded, but the important thing is that when you bring your loan request to them, they do not re-offer your loan among direct lenders around the country in an effort to get your loan funded. Direct investors use internal money to fund your loan.
The term institutionally funded means that you work with a direct loan funding company who already has the money to fund the loan in their possession. Many direct lenders are funded by investors. These financially qualified individuals invest in hard money loans on a case by case basis. When you or your broker contacts the lender, your paperwork is then 'translated' by the loan officers in that company into a prospectus for their investors who then decide whether they want to invest. Once sufficient funds have been accrued, your loan is funded. This can take just a few hours or weeks to accomplish.
Hard money loan criteria varies from one lender to another. The more 'flexible' the lender is about the terms, Loan To Value, financial qualifications, etc., the higher the risk to the lender and therefore the higher the rates you will pay. If you have a loan that is a near bank deal, which means a loan your local bank almost said "Yes" to, but it didn't match their qualifications for one reason or another - or the bank simply couldn't fund your loan quickly enough to suit your needs, then you should work with a company that specializes in that kind of loan and charges suitably lower rates than most hard money lenders.
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Hard money loans are collateral-based real estate loans made by private investors instead of banks. These loans fill a need for funding when banks won't lend for any reason, there are credit problems, or there isn't time to obtain conventional financing to secure a purchase or get cash from the equity in a property. These types of loans are sometimes referred to by different names such as private money loans , private equity loans , or bridge loans .
You may qualify for a hard money loan, even if .
- You have bad credit, minimal credit, or NO Credit
- You have too much debt to qualify for a bank loan
- You have non-verifiable, inconsistent, or unusual income
- You have a rural property , unique property , or mixed-use property
- You need a cash equity loan with less than perfect credit and have a 1st mortgage with a negative amortization
- You need a short-term loan to build , refurbish , or remodel real estate or make improvements to raw land prior to selling the property or refinancing into a long-term permanent loan.
- The property is in the name of a trust, LLC, corporation, or an entity - rather than an individual.
- You need a business loan secured by equity in real estate, but cannot qualify or wait for a conventional business, commercial, or SBA loan;
- You are a Foreign National with no long-term U.S. employment or other assets.
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