Category Archives: Hard Money Loans

3 Reasons Why a Hard Money Lender Will Decline Your Loan

How many times have you looked at a real estate deal and it made sense on paper but then you discovered something that turned the deal sour? A couple of years ago I did a blog post on a survey of a list of hard money lenders in the industry. The results of the survey were pretty interesting for both real estate investors and hard money lenders.

For real estate investors who use hard money loans to finance their investment purchases, from time to time they are turned down for a loan. In some of these circumstances, a lender may decline a loan on an investment property even though the real estate deal makes sense on paper. But why?

Essentially the top 3 reasons that a hard money lender may decline to lend on a real estate investment property include:

1. High Crime Neighborhoods: If your property is located in a high crime or extremely distressed area. Sometimes this is where the good rehab properties are found, but if most of the houses in the neighborhood are all boarded up, most hard money lenders will pass on the loan.

2. Rural Location: The property is located outside of a major metropolitan area in a rural location where there are no sold comparables within 2 miles of the subject property. Hard money and private money lenders prefer to lend in major metropolitan areas over rural locations. Although a real estate deal in a rural area may look good on paper, if there aren’t sold comps nearby to support value, a hard money lender may turn it down. Also, smaller market, smaller pool of buyers. There are exceptions of course.

3. Low Cash Reserves: Real estate investors who are strapped too tight for cash may also be turned down for a loan. Cash reserves are not verified by all hard money lenders but some lenders will require bank statements.

6 Reasons why Borrowers use Hard Money to Fund Deals

Private money lending or “private hard money loans” are an excellent investment choice for established and experienced real estate investors.  The process offers a far better platform for the explanation of complicated but lucrative deals to accredited investors. Finding investors willing to make these types of loans may seem daunting but using a reputable, third party private money lender actually makes the process far easier than a traditional bank loan.

Availability

There are thousands of accredited investors willing to invest in real-estate secured deals that ordinary banks will not or cannot back. Not having access to traditional bank funds is not an end for a complicated but otherwise sound deal. In other words, there is a significant amount of capital in active search of excellent, real-estate secured deals.

Versatility

Institutional or government requirements are often the reason that many traditional banks decline to fund an otherwise excellent real estate deal. Individual investors do not have to adhere to the same protocols and can make informed decisions based solely on the merits of the deal.

Affordability

Interest rates are comparable to many traditional bank loans when all the fees and points are considered. In addition, terms are not set in stone and the details can be customized to meet the needs of either the borrower or the investor.

Responsiveness

Accredited investors have usually been involved in their own business or in a firm at an executive level. As such, they understand the need for making decisions in a timely manner. Borrowers can trust that they will have a response in the shortest possible time without the need for the investor to confer with committees or oversight boards.

Security

Borrowers know that they are obtaining funds from legal, reliable sources. Contracts are binding and the borrower can rely on the fact that the requirements of the deal will be honored. All traditional safeguards in a real estate deal are observed so that both the investor and the borrower can make informed decisions and act accordingly.

Ease of Use

10 Must-Knows About Hard Money Loans

Hard money loans made by private investors are one of the best sources of financing for investors looking to take advantage of the great prices in California’s residential housing market. With attractive terms and rates on one to four unit homes, they make it possible for you to purchase great opportunities even in today’s constrained lending market. Here are 10 things that you should know about these exciting financing products:

1. Hard money loans make tough transactions possible. When you have a slam-dunk transaction that will not pass muster with a bank, they are your best option.

2. They are less expensive than you think. While hard money typically costs more than a bank loan, most borrowers can get loans at very favorable rates and terms. Given the returns that most real estate investors expect to make from properties bought with hard money, the loan is quite inexpensive.

3. Cash reserves matter. Most private lenders want to ensure that you have enough money to service their loan, no matter what.

4. Private loans can be used for construction and rehab financing as well as for straight purchases.

5. Hard money loans are fast. You can expect your loan to close in days or weeks instead of months. While loans usually take two to three weeks to close, three day closes are possible.

6. Hard money lenders are flexible. Since they are private individuals, they can frequently structure loans creatively to meet your specific needs.

7. Flips, rehabs and other distressed property transactions are not a problem. If they will make you money as an investor, they are a perfect opportunity for a private lender.

8. Access to private mortgage loans makes it easier for you to get the best deals. Being able to buy with no loan contingency or with a very short loan contingency makes you a much more attractive buyer to the sellers of distressed property with a great deal of upside.

9. Hard money loans are available with a longer amortization period or, in the case of short term loans, on an interest only basis. This frees up more cash flow for you to use to make other investments.

10. Private mortgagers are usually more worried about your character than your credit score. While you must be creditworthy, most private lenders will not immediately dismiss you on the basis of your FICO score alone.

Five most common questions about “Hard Money Loans”

For those who have never obtained a hard money loan, there are typically a lot of questions. Here are some of the most commons questions and answers about private and hard money loans:

 1. What exactly is a hard money and or private money loan?

A hard money or private money loan is a non-bank loan. Whether the source of the loan is a private individual, a fund, or an insurance company, a hard money or private money loan is any loan that comes from a non-bank source. Interest rates charged are typically higher than a bank loan, and loan terms are much shorter. One can expect to pay between 7% to 18% interest, and the loan term offered is between 90 days to 2 years.

 2. Do some hard money lenders offer longer loan terms such as a 15, 20, or 30 year mortgage?

Typically a hard money / private money lender will provide a loan for a term of 90 days up to 5 years. Most hard money loans are made on a short-term basis. It is very rare to find a hard money or private money lender that will offer a loan term for longer than 5 years, however there are some exceptions.

3. Will a hard money lender give me 100% of the purchase price like the old days of hard money lending?

Before 2007, it was common to find hard money loans that would give you 100% of the purchase price of a piece of real estate. Since the real estate crash however, most hard money lenders will only give you a loan for a percentage of the purchase price. And these days, more emphasis is placed on the borrower’s ability to bring in a significant down payment. With most hard money loans, be prepared to bring in between 10% to as high as 50% on some real estate.

4. What if I have a bankruptcy, short sale, or a foreclosure on my credit? Can I still get a hard money loan?

Although there are some hard money lenders that will not make a loan to you under these credit-based circumstances, there are many that are still willing to make you a loan even if you have these types of marks on your credit report.

5. What kind of collateral can be used for a hard money loan?

Although most hard money lenders only use real property as collateral (real estate), there are some hard money lenders who will use jewelry, recreational vehicles, and other types of collateral to make a loan. However, it is difficult to find hard money and private money lenders that will accept such collateral. Most hard money lenders want to use real estate as the collateral for the loan.