What Is A Hard Money Lender?

Hard money lenders are often individuals or small companies that provide special kinds of real estate loans for various asset classes. What sets these lenders apart from your ordinary lending entities is their ability to give bridge loans or short-term loans to delinquent or high-risk borrowers, with the loan amount denoted by the collateral property’s value. The higher rates (as compared to banks and brokers) these lenders exact are ostensibly due to the risk involved in these transactions. Lenders from this category have emerged into the real estate mortgage industry due to their ability to aid borrowers who have difficulty obtaining loans through other avenues due to current economic conditions.

Even with the higher interest rates entailed, the high-risk borrowers who have been turned away by ordinary lenders may prefer to work with private hard money lenders. These types of transactions are risky, although the danger of defaulted payments for the lender is lessened by the thirty to forty-percent equity boosting the security of the loan. Aside from individual borrowers, high-risk companies also work with these lenders, as they, too, may have been unable to transact with larger lenders because of the increasingly stringent guidelines for underwriting the latter implement.

Hard money lenders can recoup their expenses from these bridge loans or short-term loans through the interest rates they charge, which can range from a low of eleven percent to a high of around sixteen percent – much higher than what banks charge. The loans may be used for a variety of purposes, with the purchase, refinancing, or construction of commercial pieces of real estate among them. A bridge loan may also be used towards alleviating the effects of property foreclosure and bankruptcy, or working out loans for residential and commercial real estate, vacant areas of land, and so on.

A borrower’s hard assets are integral to his or her success in getting a loan from hard money lenders. Transactions with these lenders comprise of partial property deed release, payments focused solely on interest, and participation, resulting in typically quicker turnaround time, and with the property’s value as collateral.

Hard money lenders will give a borrower in dire circumstances, as well as a high-risk company, loans towards financial aid faster than banks can. After the loan has been awarded, ensure that you have a well-thought out strategy and exhaustive business plan to be able to pay back the amount you borrowed. A good exit strategy is necessary before you secure a hard money loan.