Hard Money Lenders Provide Loans Even To Investors With Poor Credit
Ever wondered about hard money lenders and when they should be used in your real estate investing? Well, here's the layman's guide to getting started with hard money loans. We'll begin by presenting the negative aspects of hard money but introduce the benefits towards the end... so read on.
Hard money loans are considered high risk and you are dealing with investors who want a high return on their money. That means your interest rates will be very high and a hard money loan will be a very expensive way to borrow money.
Hard money lenders are third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding 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!
A hard money loan is extremely beneficial because you are not qualified based on your credit score or character, but hard money lenders qualify you based on the collateral in the loan. You might be able to get better rates elsewhere, but this offer offers flexibility to those whose credit history or loan serviceability, or even time schedule can't allow for service from a conventional lender.
Where should you look to find hard money lenders? The first place is in the "money to lend" pages of your local newspaper. The second place is at a meeting of your local real estate investing association. Local hard money lenders are often attending to solicit new business. Eventually, do not forget to check on the internet: just search for "hard money loans" or "hard money lenders."
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.
Published May 18th, 2007
Filed in Business, Career, Finance, Real Estate
