Hard money lenders are private individuals who lend their own funds. They are not institutional investors who have a standard set of guidelines dictated by the Federal Reserve. They offer special types of loans that involve secured property, that is, they offer loans that have been made against property. Therefore, if you deal with a hard money lender for a loan, you will be putting up your house as collateral. They often look at a potential real estate deal when deciding whether or not to make a loan on a particular property.
Hard money lenders generally lend solely based on home equity. Due to the extreme demand of the lenders and their ability to choose which loans they want to make. They are a great resource for real estate investors, particularly for beginners with limited resources (for example, having an (hml) on your team allows you to make property offers with confidence. HMLs are not loan sharks who break borrowers’ kneecaps when they can.At the same time, these moneylenders are not your Grandma Sue.
Hard money lenders often attend these groups or the investors who attend have connections to (hml). They typically charge very high closing costs and 4-5 “points” (each point is 1% of the loan amount) on a deal. So the points alone on a $71,500 loan could add up to $3,575. They will structure loans based on a percentage of the quick sale value of the property in question. This is called the loan-to-value ratio, or LTV, and is typically between 60-70% of the property’s market value.
Hard Money Lender checks credit, not needed for credit scores, but to check bankruptcies, foreclosures, charge-offs, and collections. They look for ability to pay. Hard money lenders often have much higher interest rates than banks (11-16%) because they finance deals that don’t meet banking standards. They will typically lend 50-65% of the After Repair Value (ARV) of an investment property, less the cost of repairs. The loan will generally be interest only for the purchase and rehabilitation of the property.