Monthly Archives: September 2013

Why Are Hard Money Loan Interest Rates Higher Than Bank Rates?

Private money loans, also called hard money loans, are forms of non-bank financing. For those who can’t qualify for a bank loan, it can be disappointing to find out how high interest rates can go once you are out of the bank zone. Interest rates charged on non-bank loans vary from as low as 7% to as high as 18%. There are many reasons for this. Most lenders, whether bank or non-bank, attach higher interest rates with higher levels of perceived risk. For example, a borrower with bad credit is perceived as having a higher level of risk and so this borrower will be given a higher interest rate on a loan.

Hard money loan interest rates are not ruled by the same factors that affect bank rates.

1) Faster Loan Funding: Private money lenders can move much more quickly to fund on a loan than a bank. This short timeframe for underwriting a loan is perceived as adding a higher risk to the loan.

2) Credit and Income Independent: Hard money loan approvals are not credit or income dependent, as are bank loans.

3) Property Condition: Most banks won’t lend on a property that is in poor condition and/or vacant. A hard money loan is perfect for properties that require rehab. However because a rehab depends on a borrower’s ability to perform, these loans are perceived as higher risk.

Hard Money Lenders – How to stay away from fake lenders?

If you are in a situation, where you need financing and you are not willing to wait for the conventional lenders or you are unable to fulfill their extensive documentation requirements.

Then, you have a good option of hard money loans to get funding for your deal.

Now, many people are concerned about whether these hard money lenders are true or not and how to make a right decision?

While looking for hard money lenders, the first and the most important thing to look for are fee collectors.

What do you mean by fee collectors?

Please don’t mistake them as a lender as they are no more than a middle man, who doesn’t fund you any money. They are only interested in making a loan application for you and collect fees.

After this, they just forward your loan application to the real lender, who will fund you and they can charge you from few hundred to few thousand dollars as their fees.

This is absolutely useless and waste of money. You should stay away from these fee collectors, who charge you fees even before you make a loan application, which needs to be avoided.

Another important thing to look for is finding the “real” hard money lender.

You can easily find out whether the lender you are going to is real or not and the easiest way of finding them is their take on credit. If they have a credit score requirement, then they aren’t the real ones but a real lender will only look for the property, you are interested in.

So, the lenders who want every little detail from you about your credit or job history are not the real lenders as their requirements are exactly similar to those of conventional lenders and that is not going to help you in any way.

Finally, I would like to talk about some of the key factors here and amongst them; one of the most important factor is the After Repaired Value (ARV).

Many hard money lenders will only lend you up to 70% ARV.

That 70% will include purchase price of the property and repair costs as well but the calculation of an ARV isn’t very easy.

You need to make sure that your lender is using expert’s advice, who works individually and their values aren’t dependent on anything. These experts should be living in that particular area, where your property is located.

Stay away from those, who use software or different websites for determining the value of ARV.

These were the three easy ways to assure yourself that you don’t fall into the trap of fake hard money lenders.

How to Get a Hard Money Loan Approval

1) Find the right project. Hard money is collateralize d with the property in question so finding the right one is very important. A property valued in the right range may not be in a suitable neighborhood. Hard money lenders want to know that the property and the location are a safe investment.

2) Have the proper documents ready. Hard money loans are primarily secured with the property but knowing about the borrower is important. You may be asked about credit, income and assets. Be prepared 3) Have the proper documents ready. Hard money loans are primarily secured with the property but knowing about the borrower is important. You may be asked about credit, income and assets. Be prepared

3) Have an exit strategy. Hard money loans are typically short term and usually are 1-2 years in length. The lender wants to know that the borrower has a plan for either selling or refinancing the property before the term is up. Knowing how you plan to repay the loan is a key factor in a hard money lender’s decision.

4) Do the research. The borrower should know the area they want to invest in and should have pictures of comparable properties. Finding the recent sales of similar properties is also important.

5) Talk to a contractor. If the borrower brings a estimate from a contractor showing what repairs are needed and the costs involved, they are much more likely to be considered for a loan.

6) Bring value to the table. Hard money lenders want to see that borrowers are not in a financially difficult situation. Lenders will look for cash on hand, a good credit score, cross collateral, and experience investing in real estate. Not all factors are needed but showing one or more will help sway a lender.

7) Perform. Hard money lenders want to see that you’re interested in this loan. Return calls promptly and get the information they need in a timely manner. Hard money lenders keep less capital on hand than banks. If you delay in getting back to a hard money lender, they may lend their assets to another borrower.