What is a hard money loan?

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk taken by the lender. Most hard money loans are used for projects lasting from a few months to a few years.

 

How does a hard money loan work?

Traditional bank loans are dependent on many factors, including the borrower’s income, credit, tax returns, etc. They require minimum credit scores, and can take months to close. A hard money loan relies solely on existing hard assets (real estate). There are no credit score requirements and loan decisions happen much more quickly. Though higher risk means a higher interest rate, hard money loans can be highly beneficial for many investment opportunities.

 

Who qualifies for hard money loans?

How do you qualify for a hard money loan? Truth be told, you don’t. The property is or should be 99% of the underwriting criteria. Investors lend on property that has plenty of a protective equity left after funding the loan.

 

 Where does the money come from?

As the name implies, the funds come from private investors who are looking to make hard money loans.  The source could range from one individual hard money investor to a group of private investors who each fractionally invest in your hard money real estate loan, or a group of private investors who have already pooled their funds and rely on a professional commercial lending asset manager or hard money loan broker to fund loans to qualified borrowers.

 

Is hard money only for desperate borrowers?

Not at all.  There are numerous  transactions that just don’t fit the conventional lending mold  and hard money loans are just another means of financing these transactions.  Commercial bridge loans, land loans, and hard money residential rehab loans are all examples of difficult loans to get from a bank.

 

Are private money lenders out to steal my property?

Most private money lenders have NO desire to take your property.  They earn their living by servicing your loan on behalf of their investor.  If they take your property, the income stream of the loan amount per year stops so their incentive is to keep you in the property, not take it.

 

Call Axis Property Advisors for additional information regarding our hard money loans. 602.614.5590