Guide to hard money lenders

Hard Money Loans What You Need To Know

Hard money loans, whether offered by private investors or commercial hard money lenders, are often the credit of last resort for people with distressed or foreclosure risk properties. Secured by the actual property the loan is written against, they have several features that make them appealing to people with poor credit history or no credit whatsoever.

First and foremost, as a secured loan, the lender will usually do a cursory credit check, or will discuss payment terms with you directly. As a hedge against the risk the creditor takes, most of these types of loans have very high loan to value ratios; a lender selling a loan against a home worth $200,000 will typically offer $130,000 on it.

The second element is that the term will be short, and the interest rate high. The hard money lender is looking to get their money (and profit) out of you making the regular payments agreed to, but if necessary, because the asset being seized is worth more than the value of the loan itself, they cover their risk by the knowledge that the house can be sold within a one to four month timeframe.

Hard money loans have interest rates that run 3-6% higher than is normal, though they’re not directly driven by bank lending rates. Most hard money lenders work from a knowledge of what the real estate market is like in their home city. For example, Las Vegas hard money lenders know full well that property values for single value homes are still plummeting in that market and some have turned defaults and seizures into multiple-family rental properties to handle the economic adjustments.

Most private hard money lenders have a reputation for playing hardball, and this is not undeserved. They know that if you’re talking to them, you’ve already exhausted your other contacts. When working out a deal with a hard money lender, always remember that you’re making a deal based on compromise you’re not losing your home, but you are going to be paying more for it. Focus on how both you and the private investor are making a mutual win out of a potentially ugly mess.

Before you get to the point of contacting a hard money lender, you should ask yourself some important questions: The first is can you get out from under your mortgage in any other way, by selling the home, or taking on a tenant to help cover bills. The second is to ask yourself what comes next; sadly, one of the biggest errors homeowners make when getting into situations with hard money lenders is to not ask what comes next they’re so terrified of losing their home that they won’t ask if keeping it is even worse for them.

That being said, if you do expect an increase in income in a foreseeable timeframe, and can’t get credit any other way, a hard money lender can help you get some capital out of your home quickly. The trick is to make sure that that capital is used wisely to improve the value of your home and financial situation, not as an ATM machine for a spending splurge.