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Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Here’s a layman’s guide to borrowing through hard money loans. To start with, we will make you aware of the downsides of hard money. Later, we will introduce you to the upsides of hard money. So, keep reading……
Hard money lenders are experienced investors and require a good return on their investment. This often causes hard money loans to become a last resort for people investing in real estate. The interest rates can be quite high, making hard money loans an expensive option for funding your real estate deals.
Hard money lenders are 3rd party lenders who charge interest rates higher than the current market rates. The interest rates charged by hard money lenders are typically 5-10 percentage points higher than the conventional lenders. Hard money lenders will also charge “points” on a loan which is essentially pre-paid interest on loan. All this makes, borrowing from hard money lenders an expensive alternative.
Then, why use hard money loans?Well, hard money loans are normally around 65 to 70% of the ARV (after repair value) of the property. This is very important, as now you can get finance for all of the purchase price plus any rehab costs if your ARV is sufficiently higher – in other words, you can get into the deal with nothing down!
If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.
So where do you find hard money lenders? The first place to look is in the “money to lend” section of your local newspaper. The second would be at a meeting of your local real estate investing association. Local hard money lenders will often attend to solicit new business. Finally, don’t forget to check online – just search for “hard money lenders” or “hard money loans”.
Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Hard money loans will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. Third-party lender who charge interest rates higher than the prevalent market rates for lending is called an hard money lender. Another benefit of hard money lending is that instead of lending based on your creditworthiness or character, money lenders will lend based on the security of the loan.
- David E. Williams
