WHAT IS A HARD MONEY LENDER?
A hard money lender is an investor who makes loans secured by real estate, typically charging higher rates than banks but also making loans that banks would not make, funding more quickly than banks and/or requiring less documentation than banks.
WHY DO HARD MONEY LENDERS EXIST?
Hard money lenders exist because many real estate investors need a quick response and quick funding to secure a deal when looking for a real estate loan. Banks and other institutional lenders that offer the lowest interest rates don’t provide the same combination of speed and transparency in their decision making process, along with quick access to capital.
HOW DO I GET A HARD MONEY LOAN?
The best way to secure a hard money loan is to know or be referred to a reputable hard money lender like FFF-CC. The prospective borrower can simply call and describe the nature of the project for which capital is desired. When presenting a project to a lender, the borrower should be prepared to provide the following information:
Deadlines and dates which are critical to the transaction (for example, the closing date for a purchase if the borrower is seeking a purchase money loan); The specific property address; Whether the loan is for a property acquisition or refinancing of an existing loan; The purchase price of the property; The intended renovation budget; The intended asking price for the property (assuming the project is going to be resold after renovation);
WHAT IS THE MAXIMUM LOAN-TO-COST FOR HARD MONEY LENDERS?
Hard money lenders utilize two different measures to evaluate deals: loan-to-cost (LTC) and loan-to-value (LTV) metrics. While risk tolerance is highly dependent upon the lender, most prudent private money lenders will not exceed a loan-to-cost ratio of 75 percent.
Lenders may use the lesser of the LTC or LTV values to assess a loan, depending on when the property was purchased; in the instance of more recent purchases, lenders will look at what the borrower paid for the property.
WHAT DOCUMENTS ARE INVOLVED IN A HARD MONEY LOAN?
Typical loan documents required for a hard money loan include a Note and a Deed of Trust; other documentation requirements do vary but may include a personal guarantee from borrower (sometimes non-recourse loans are issued without a personal guarantee); personal financial statements such as past tax returns and proof of income; and assurance that the borrower has access to sufficient cash to perform any and all proposed property renovations.
HOW LONG DOES IT GENERALLY TAKE HARD MONEY LENDERS TO FUND A LOAN?
It generally will take a hard money lender 30 days or less to fund a loan, although some are equipped to do this in two weeks or less.