Private Hard Money Loans

Private Hard Money Loans

Private hard money loans used to be a small segment of the financial world. Reserved for those with poor credit, these loans have traditionally been a last resort for many. In addition, many well qualified borrowers would not have considered this option in years past.

With the turmoil in the financial markets these days, however, all of that has changed. These days, private money loans are a viable option for even the most well qualified borrowers. Excellent credit, large down payments or a large amount of equity in a property are becoming the new private money norm rather than the exception.

It used to be that credit played no role in this type of lending. If you had equity and a pulse, someone would make a loan for you. These days, however, poor credit can play a role in dictating your approval with a hard money lender. While poor credit may not deny you a loan, it could require a much more conservative loan than you may expect. At the same time, borrowers with excellent credit and assets are finding that their normal banking relationships are not able to secure the financing they need. Due to this, they are turning to hard money options.

Many people considering this type of financing for the first time may be surprised by the terms. Typical terms on this type of financing can range between 9 and 14 percent, in addition to points being charged on the transaction that can range anywhere from three to seven or more. This is expensive money, but in these times of tightened credit, savvy investors realize that it is still much cheaper than taking on a partner.

Hard money loans are typically funded by a private individual. Sometimes you can have multiple individuals who fund a particular transaction, in which case it is referred to as having multiple beneficiaries. The benefit to this structure for those private investors making the loans is the high rate of return and the security of the real estate that is being used as collateral. With the strict lending guidelines the banks have these days, private investors can make double digit returns, while staying at a 50-60% loan to value. This means they are lending a maximum of 60% of the value of the property, keeping a safe buffer of protective equity.

The benefit to the borrowers is the ability to actually borrow funds. Although the interest rates being charged can be in the double digits, the ability to leverage in this real estate market often times outweighs the cost of funds.