Hard money lenders provide capital to businesses and individuals for the purchase of real estate or to finance business development projects. Hard money loans are most commonly used for real estate transactions, such as rehabilitation projects or commercial developments. Lenders finance a sizable portion of these transactions and the loans are subject to strict terms and conditions. These types of lenders are usually available over the Internet rather than through traditional bank branches. Many private investors provide hard money loans as well.
Lending Practices
Hard money lending practices often involve quick loan turnaround times and very strict terms. Consumers have access to large sums of capital within 24 hours in some cases. Lending practices are not regulated by government agencies; therefore, lenders have the ability to make up their own rules regarding who they lend to, how much they lend, and under what terms. Lenders usually provide loans to individuals who are considered high risk by traditional banking standards. Applicants usually have no verifiable income or financial statements. Some applicants have little or no credit history. Some of the investments hard money lenders provide loans for are high risk as well. For example, hard money lenders often provide financing for real estate that is under construction or severely distressed. The amount of risk accepted by hard money lenders is considerably high compared to soft-money or traditional banks.
Lending Criteria
The qualification criteria for a hard money loan often depends on the type of investment. In many cases, hard money lenders do not base an approval decision on credit history but on an evaluation of the asset that is being acquired. Individuals who have been turned down for traditional financing or those with little or no credit often qualify for a hard money loan as long as the asset meets the qualification criteria. For example, most commercial property hard money lenders consider the value of the building to be acquired when making an approval decision. The lenders will approve a loan based on a percentage of the value of the property. Depending on the lender’s terms, applicants could expect to receive a loan for between 50 to 80 percent of the value of the property they would like to purchase.
Loan Terms
Hard money lenders usually have loan terms that are considered excessive when compared to traditional lenders. It is not uncommon for interest rates to linger between 18 to 26 percent. Loans usually have shorter repayment schedules as well, ranging from six months to five years. Prepayment penalties are often involved, but some hard money lenders allow loan applicants to purchase more favorable options for a higher fee. Loan applicants are often expected to bring a sizable down-payment to the closing table. Down-payments of up to 50 percent are common depending on the strength of the loan application. Hard money lenders are able to make loans in very little time at all. Investors with an immediate need utilize hard money lenders to get the financing they need with a quick turnaround and limited paperwork.by Sherrie Scott, Demand Media
Hard money lenders provide capital to businesses and individuals for the purchase of real estate or to finance business development projects. Hard money loans are most commonly used for real estate transactions, such as rehabilitation projects or commercial developments. Lenders finance a sizable portion of these transactions and the loans are subject to strict terms and conditions. These types of lenders are usually available over the Internet rather than through traditional bank branches. Many private investors provide hard money loans as well.
Lending Practices
Hard money lending practices often involve quick loan turnaround times and very strict terms. Consumers have access to large sums of capital within 24 hours in some cases. Lending practices are not regulated by government agencies; therefore, lenders have the ability to make up their own rules regarding who they lend to, how much they lend, and under what terms. Lenders usually provide loans to individuals who are considered high risk by traditional banking standards. Applicants usually have no verifiable income or financial statements. Some applicants have little or no credit history. Some of the investments hard money lenders provide loans for are high risk as well. For example, hard money lenders often provide financing for real estate that is under construction or severely distressed. The amount of risk accepted by hard money lenders is considerably high compared to soft-money or traditional banks.
Lending Criteria
The qualification criteria for a hard money loan often depends on the type of investment. In many cases, hard money lenders do not base an approval decision on credit history but on an evaluation of the asset that is being acquired. Individuals who have been turned down for traditional financing or those with little or no credit often qualify for a hard money loan as long as the asset meets the qualification criteria. For example, most commercial property hard money lenders consider the value of the building to be acquired when making an approval decision. The lenders will approve a loan based on a percentage of the value of the property. Depending on the lender’s terms, applicants could expect to receive a loan for between 50 to 80 percent of the value of the property they would like to purchase.
Loan Terms
Hard money lenders usually have loan terms that are considered excessive when compared to traditional lenders. It is not uncommon for interest rates to linger between 18 to 26 percent. Loans usually have shorter repayment schedules as well, ranging from six months to five years. Prepayment penalties are often involved, but some hard money lenders allow loan applicants to purchase more favorable options for a higher fee. Loan applicants are often expected to bring a sizable down-payment to the closing table. Down-payments of up to 50 percent are common depending on the strength of the loan application. Hard money lenders are able to make loans in very little time at all. Investors with an immediate need utilize hard money lenders to get the financing they need with a quick turnaround and limited paperwork.by Sherrie Scott, Demand Media