Hard Money Loans vs Bank Loans

Hard money loans are much different from traditional lenders and banks. One of the best ways to understand hard money lenders and the private investor loans they offer is compare them. The following table below shows parties, processes and terms common to one or both types of lending and compares them in relation to each other.

Party/Process/Term	Bank Loans	Hard Money Lenders
Agent	Typically sells real estate but might originate loans as well if licensed by their state and registered federally as a Mortgage Loan Originator.	Used rarely unless the sale of real estate is involved as part of the loan transaction.
Broker	Licensed as a real estate broker.  Agents freeze their license with a broker. Typically the highest licensing designation.	Same as bank loans
Loan Officer	Normally an employee of a bank, mortgage broker, mortgage banker, or large commercial lender who originates loans.  Licensing requirements may vary depending on the type of institution and their state and federal licensing.	Not a term used by hard money lenders.
Loan Broker	Same definition as Mortgage Broker.	A licensed broker specializing in brokering hard money loans.
Mortgage Broker	Works with 3rd party institutions to search conventional loans in order to meet your needs.	The term is used rarely because they are typically offering their own loan products so there is nothing to “broker.”
Mortgage Banker	Normally works along 3rd party institutions to fund loans but will primarily fund with their own money or through a pre-arranged credit line.	Loans funded with their own funds, a pool of funds they manage, or line of credit.
Hard Money Lenders	N/A	Broker who runs a specialized business dedicated to originating private money loans.  These people are often referred to as private money lenders.
Programs/Guidelines	Set as per government agencies like: Fannie Mae, Freddie Mac, FHA, VA, USDA, State Housing Agency, and some in-house “portfolio” lending programs.	Hard money loans are customized to borrower’s needs based on loan and collateral criteria such as LTV and DTI. Typically it is more flexible and faster than Conventional lenders.
Borrowers	Good credit history with easily documented income sources.	Non-traditional income and self-employed sources are accepted.  Income is analyzed differently and possible exceptions are made for past credit flaws.
Eligible Property Types	Single family homes, 2 - 4 unit and some other types of commercial property.	Other properties that fall outside of the conventional parameters like rehab loans, construction loans, bridge loans, occupied rentals used to secure startup capital for new ventures.
Vesting	Always in the individual borrower’s name.	Is more flexibility and generally permits vesting in trusts, limited partnerships,  Corporation, and LLCs.
Due Diligence	Minor to none.  Review of initial disclosures and final documents at signing with terms expected.	Extensive research of collateral and borrower’s entity is done.  Personal guarantee and Opinion Letter is generally required.
Loan Costs/Closing Costs	Normally 1 - 2% of the total loan amount.	Can be as high as 3-10%, depending on the loan amount.
Servicing	Handled by the institution who have originated the loan.  Often, one institution will sell the servicing rights to a larger firm which specializes in servicing.	Typically the private money lender who originated the loan, or a smaller servicing company.
Non- Monetary Loan Covenants	Covenants are required to be met during the loan process.  Covenants vary by lender, but typically include financial reporting, and the maintenance of various ratios like; loan to value and debt service coverage ratios.	Similar, but may be more strict, depending on lender.
Interest Rates	Rates are typically competitive between lenders, and are generally lower than private lending.  Most customers turn to private money loans not for the rate, but because the loan is otherwise unavailable.	Rates start at 8% and go up based on unique criteria of each

How to Deal with Hard Money Lenders

Dealing with lenders

Despite their name, working with hard money lenders is much easier than with their conventional counterparts e.g. banks. The majority of these lenders are focused on bringing flexibility and transparency to business deals as well as restricting the amount of red tape that borrowers have to deal with. Nonetheless, here are a few secrets to getting the best deal when you’re negotiating your hard money loan:

Know how hard money works:

Hard money loans require a tangible asset to secure the loan (i.e., act as collateral). The term hard money is typically used to refer to real estate secured loans.  The lender determines the viability and amount of the loan based on the value of the property rather than the credit history of the borrower.

Know where the funds come from. 

Private lenders fund loans with their own capital. This allows them to make decisions directly without consulting with a third party (such as a loan committee).  Borrowers need to understand the difference between a direct hard money lender and a loan broker.  A direct lender actually controls the money to fund the loan and can indeed make decisions without consulting with a third party.  However, many loan brokers represent themselves to borrowers as direct lenders when they are in fact just a middle man between the actual lender and the borrower.  This means that the broker has to collect the information and send it on to the actual lender who in turn makes the decision to fund or not.  This creates delays in getting a go/no go decision.  It also adds another layer of fees that the borrower will have to pay.  The broker will take a fee and the lender will take a fee.  Borrower should make every effort to find out if the lender they are thinking f working with is a true direct lender or is a loan broker misrepresenting themselves as a direct lender.  A direct hard money lender needs to impose stricter terms and higher interest rates than conventional lenders in order to protect their investment. Banks do extensive research into the borrower’s past tax returns, bank balances and reviews all their sources of income and expenditures.  Hard money lenders just look at the property.  Borrowers should also be aware that hard money lenders are not governed by banking laws, which allows them the freedom to underwrite loans that conventional lenders would reject.

Research your lender:

You can often find testimonials and starting terms on the lender’s website. You can also call and ask for references; reputable hard money lenders will be happy to provide you with this information. It can also be a good idea to call with your loan request or to email a loan summary prior to setting up a meeting.

Prove your project’s value. 

Before meeting with a lender, you should be prepared to prove the value and viability of your business plan. You will be dealing directly with the decision-maker; therefore, it’s important to show that you know what you’re talking about and can back up any claims about the value of the property (especially the resale value) with actual numbers. While private lenders require less documentation than conventional lenders, they will still want to see financial statements, especially for income-producing properties. Also, while not usually necessary to close the deal, good credit history can sometimes help influence the interest rate they offer you.

Have an exit strategy. 

The high interest rates of hard money loans mean that it is in your best interest to pay it off in full and on time. Most lenders will want to know how you plan to repay the loan before even agreeing to lend you the money. It’s also a good idea to be diligent in meeting any and all deadlines set by your lender as it will make them more willing to agree to an extension in the event that you need more time.

HML Common FAQ

The process for Getting Hard Money Loans?

Hard Money Loans provide Investors easy access to capital to purchase properties. They can fund more quickly, typically within 72 hours of receiving the final docs from the entitled Company. Hard Money is available for adequately collateralize loans on single-family residential houses and other Real Property including commercial projects. 

How do You deal with lenders?

After doing your homework, you should speak directly with a loan officer or principal of the company to learn more.Take your time on the phone, and ask questions about how they do business, what they cost, and what they need from you and from the borrower. Make sure to ask if the person or company is a lender or a broker. Do they fund with their own money? Do they have funds available now? And can the lender provide some examples of recently closed loans? Don’t forget to take notes.

If the conversation goes well, a lender may ask you what kinds of deals you have on your desk that it might be interested in. Be ready to talk about any deal you have that is seeking hard money.

What Will It Cost?

All loans will require the Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

How does Hard Money are Compare to a Traditional non-owner occupied investor loan?

Typically these type of loans are for quick turn around or after situations like repair. Conventional financing technique is used for your traditional rentals and long term hold scenarios. As the foreclosure market increases you will will find investors to use HML as a way to secure the property in a short period of time then refinance into Conventional finance.

Is It Safe to Use?

It is relatively easy to find HML that are merely businesses seeking a higher return on investment funds than they can get in the stock market. These lenders typically follow the regulations and laws as carefully as institutional lenders in underwriting, documentation and servicing of their loans.

Loan modifications may be easier and more creative with a hard-money lender because borrowers often can speak directly to the top decision maker. In addition, because every loan is a larger percentage of a hard-money lender’s portfolio than it is for an institutional lender, the hard-money lender has more incentive to help guide each loan to a successful conclusion.

What About the Interest Rates?

The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

Getting Hard Money in California

Lending Hard money in California is just as popular as it is in most other areas, particularly with property buyers. You might wonder why credit seekers would likely decide on private hard money lenders over traditional loan associations. You may often hear or read that private funders demand extra or that they are known to be a last option for funding.

The truth is that they offer many services that the banks cannot or will not. They approve more loans, in a timelier manner. They understand the needs of the investor, since most of them have invested in real estate. Many of them still do. Some of them are even considered specialists, a good choice for the rehabber or reseller. The fees that they charge are reasonable, for the most part, but to get the best deal, you should shop around.

Choosing The Right Hard Money Lender

Get your loans now

One of the biggest catch in foreclosure an investment is arranging the finance. You cannot Hard money lenders are private lenders/individuals who provide loans from their own finance. They do not belong to any institution. Yes the interest rates are high as compared to conventional lenders, but it’s worth it.
expect banks for instance who sell the properties to finance the same. For them, they are already burdened with a lot of unpaid loans and innumerable foreclosures. Where traditional lender backs you down, a real estate investor can take loans from hard money lenders in California.

If you are a real estate investor, hunting for finance, then California Hard Money Lenders is your ideal destination.

There are many more other hard money lenders ready to provide loans to foreclosure investment. How do you choose the best? Here are some useful tips

Choosing the best hard money lenders in California

·         Know what you want:

The first thing is to determine your financial needs before approaching the hard money lender. Remember borrowing extra loan creates an additional burden of interest. Likewise, underestimation creates lack of funds in near future.

·         Research on the hard money lenders:

Unlike conventional lenders like bank and other lenders, private hard money lenders do not run on any specific rules and regulations. Instead they have their own terms and conditions. Therefore, you need a quick research of all hard money lenders before making your decision. You can anticipate from friends and acquaintances while searching for the best hard money lenders in the area.

·         Look for a lender in your locality:

You may have to visit the lenders frequently. It is convenient if he stays in the neighborhood.    Also, see that the lender understands your needs, is patient and compassionate. They can help you only if he can understand your needs patiently.

·         Terms and conditions:

It is important to go through the terms and conditions before making the final call. Such practice avoids any difficulties in future and also gives you a broad picture of what you are getting into. Some hard money lenders are flexible and can design the loan amount and payments fulfilling your limitations and expectations. However, it may be, most lenders have specific terms and conditions underlying the loan. Therefore, it is advisable to study thoroughly and understand the terms and conditions laid down in the loan agreement. If you have any doubts, do clarify it with the lender before making a deal.

Hard money lenders are a great option for financing foreclosure investments. Hard money lenders offer their invaluable support where conventional lenders fail to do so. The good news is that these lenders sanction the loan in a very short span of 48 hours or at most a week. In foreclosure investment, timely financing can make or break your deal. With a reliable hard money lender by your side, you will never lose a promising deal.

Two Major Benefits of Hard Money Lenders

California Hard Money Lenders

You have just started your business by using bank loans, monthly savings, credit cards, lines of credit,

You are not happy about how long the banks take to get the loan. It takes upto 4-1/2 months on a house without a furnace. The banks did not know if they wanted to make a loan on such kind of house, but that rehab business is all about. Buy them ugly, cheap and fix them. If you would have used a California hard money lenders on the above deal, you could have bought, fixed & sold the property and saved $20,000 by the time to the closing table with the banks.

With private money lenders, funds are available the whole time. When you see good deal that comes in my way, grab it, because you know the money is for you. While your competitors are searching around applying at the banks, you have made the offer and closed the deal. Your rehab crew will be over the property like ants before the competition which knows what happened. You would love having private money lenders for my business.

So, a major benefit is How Quickly you purchase a property.

Creative techniques with sellers (like land contracts or lease/options), and partners. You are more concerned that it is going to be harder to get loans to purchase the properties.

This is a huge benefit... Just think about what this has done to improve my balance. Now you will always get monthly payments . So the second major benefit is improved cash flow because now you do not have to make monthly mortgage payments but just let the interest accrue.

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What Will Hard Money Loans Cost You

Los Angeles hard money lenders

If you are new to private money financing or most commonly hard money loans, this article will clarify what private funded equity based lenders is all about. The term has been changed a little bit. Today Los Angeles Hard Money Lenders don’t need to be expensive if there is a right combination of factors.

What hard money (equity base lending) means? And what is hard money loans meant for? Following are some answers to the question.

1. For borrowers hard money loans are intended for more down payments (equity) in the property than traditional lenders and banks acquire.

2. Hard money loans are intended for short term as a substitute for long term bank loans.

3. LosAngeles Hard Money Loans don’t require recent history of credit, limited credit, late payments, judgments and foreclosure.

4. They are popular among foreign national (non US citizenship).

5. Borrowers who are in need of financing during a probate proceedings.

6. Because of lack of employment duration, career shifts, and employment gaps which normally banks don’t allow.

7. You are in need for construction or renovation funds for property investment because banks don’t offer construction loans now days.

8. You have owned 4 to 10 concurrent properties.

Interest Rates

Interest rates vary from 7 to 12% depending on variety of factors like low LTV (loan to value ratio), which is primary determination factor. If you are borrowing only 20% of the property, you will pay less for loan as compared to someone who is borrowing 70% value of property.

Credit

There are private lenders that still making loans today without caring about credit scores or previous credit history while making a loan. The new generation hard money lenders offers pricing discounts for borrowers with a better credit scores and elapsed time from prior derogatory events such as bankruptcy, foreclosure, short sale etc. Judgments, unpaid taxes, and delinquent court ordered payments must be paid with new loan or prepaid in cash before funding.

Points and fees

Fee to the lenders and broker arranging the loans are involved in lending hard money loans. Points charged for hard money varies but there is no such thing as “no point’s hard money loans”. Other fees payable are to title escrow recorder, title insurer, and third parties which vary by vendors.

Loan to Value

You will have to pay 25 to 50% down payment plus points and lenders fees if you are purchasing property. This amount will also vary depending on the lenders and other factors like property type, location, prior credit history, accompany etc. Hard money loans are predicted on protective equity in the property at closing, therefore there are no low down payments hard money loans.

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