What Are Hard Money Loans?
Category : Hard Money Loans , Real Estate Loans
To get a hard money loan, you just need to have a good collateral or property, which is completely opposite to a traditional loan, where the lender is only interested in your particulars. That’s why; you are eligible of getting these loans even if you have a bad credit history or no job history.
This is the reason behind the success of hard money and fix and flip investing.
There are investors who get confused while looking for hard money loans because of the usage of terms like “hard money lender” and “private money lender” in the real estate investment business.
What I have learnt from my experiences is that a hard money lender is basically a professional lender, who is doing it for a living. They usually have higher interest rates and they also charge points, which is 1% of the total loan you are getting and you will have to pay that right after your loan is funded.
For example, a hard money lender can also charge you up to 20% interest and 4 points. Most of the lenders I have used, are the people referred to me by my friends or I have found them via internet.
On the other hand, most of the private money lenders are my friends or colleagues i.e. people who are within my social circle. They charge you less interest rates like 8 to 10% with no points.
If you are looking for good amount of money, hard money lenders could be the best choice. That’s why; they are the best options in case of mortgage as these lenders feel more secure that they will recover their money soon.
While doing my first deal in real estate, I used the services of a lender who charged me 15% interest rate and 3 points for 80% of the purchase price of the property including repairs. The rest of the funding was done by private money as I use them on second or third place.
So, basically I am using private money for 25% of my fix and flip needs.
This is basically what I know about private money versus hard money. There are some major differences but the main purpose is to have good connections and building up good relationships amongst each other to get complete funding for your deal.
I don’t use my own money for funding a deal, even though I can afford it because when there are two parties involved, the profit margin also increased and in that way, both of them can make money. It helps you in spreading wealth.