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When you hear the words “hard money loan” (or “private money loan”) what’s the first thing that goes through your mind?
In prior years, some bad apples tarnished the hard money lending industry when a few predatory lenders were attempting to “loan-to-own”, providing very risky loans to borrowers using real estate as collateral and intending to foreclose on the properties. Luckily, these types of hard money lenders don’t exist in today’s market, although some residual stigma remains for some real estate investors who haven’t recently utilized the services of a reputable hard money lender.
- What hard money loans are all about.
- The types of properties and deals hard money loans are appropriate for.
- What kind of interest rates and loan to value ratios to expect.
- Standard requirements of the borrower.
- Where to find an experienced hard money lender to work with.
What is a Hard Money Loan?
A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years. The loan requires monthly payments of only interest or interest and some principal with a balloon payment at the end of the term.
The amount the hard money lenders are able to lend to the borrower is primarily based on the value of the subject property. The property may be one the borrower already owns and wishes to use as collateral or it may be the property the borrower is acquiring.
