A hard money loan is a non-bank loan. Some loans are not desirable for banks but they are for commercial hard money lenders who are looking at different criteria from their borrowers.
Commercial hard money lenders are not in business to crawl through your financial history of the past five years and determine that you have a good chance of making ten years of mortgage payments. They are in business to loan money because the loan is secured by the value of the property that is being purchased or by some other valuable asset in some cases. Your financial history, possible mistakes and indiscretions are far down the list of critical criteria that commercial hard money lenders are evaluating. There are a few other differences in the process and terms of the loan as well.
One of the biggest differences that borrowers notice are the fees associated with the hard money loan. A conventional loan would cost a few percent of the loan but commercial hard money lenders can charge as much as three times that of a traditional lender. The upfront fees are also more on a hard money loan. Conventional loans are around 1% of the total of the loan but a hard money loan can be as much as 5% for the upfront costs.
Loan terms are the next big difference. Traditional lenders can offer terms that range from five years up to about thirty years but a hard money loan is going to be from six months to a year tops. All of these differences seem to be in favor of the lenders and it can seem odd that anyone would ever choose to use a hard money lender. But the reasons to use a hard money lender become much clearer when you learn about the next two differences.
The First Borrower Benefit
When you approach a traditional lender for a loan, you know that you need to have a certain credit score and that there can be no blemishes on your credit history. You need to fit relatively well into the mold that the lender has for a borrower. If you don’t fit than you don’t get the loan. But a hard money lender is more interested in the value of the property that you are purchasing or the value of the item or items that you are using as collateral. The thought is simply that if you don’t make the payments then the hard money lender will take the property or other collateral and recover their investment.
The Second Borrower Benefit
This is where the old saying “Time is Money” comes into play. In this case the time is unbelievably faster than a traditional loan. A bank or other lender might claim to close a commercial loan in 30-60 days but in most cases it is more like 45-90 days if you are on the fast track. But a hard money loan can close in as little as 7 days. This is because there is not all of the red tape and processes that a large lender follows. There are rarely loan boards and or legal departments that need to be involved. If the collateral is sufficient then you are looking at getting the hard money loan that you need. So it is now a bit easier to understand why hard money loans are growing in popularity.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.