| Where did hard money come from? | | | | way up to 18% interest on their loans depending on |
| Hard Money Loans in general have traditionally been | | | | the risk and property types. |
| only for investors seeking to purchase real estate | | | | The second incentive is the points that a lender |
| quickly and with little documentation. Investors by | | | | collects for offering you their money. The lender |
| nature are much more educated about their financial | | | | often collects anywhere from 1-8% of the total loan |
| situations and options since they are utilizing their | | | | amount as their fee for offering you such high risk |
| sources and going through the lending process much | | | | money. In addition to these upfront fee's and the |
| more frequently than the average home owner. | | | | high interest rates, the lender may also impose a |
| Investors did not want to have to go through a | | | | prepayment penalty ensuring that they get their |
| 30-45 loan process every time they purchased a new | | | | interest payments over a 6-12 month period. Should |
| investment property. Often times their investment | | | | the client refinance or sell the lender is able to collect |
| projects were time sensitive and needed to be | | | | even more fee's for using their money. |
| quickly financed or they would lose the deal. Enter | | | | The final benefit is the property itself. Often times |
| Hard Money. | | | | the lender does research on the property and |
| Historically hard money was meant to lend money to | | | | determines their risk by their ability to make money |
| anyone based only on the equity position of the | | | | should they take back the property from the client. |
| property. These new forms of commercial and | | | | If the client falls behind in their payments the lender |
| residential loans were both lent based on the | | | | would be able to take ownership for example of the |
| assumption that the lender would only provide | | | | mulitfamily apartment complex and make money on |
| 60-65% of the value of a property. They would not | | | | the net operating income the property would offer. |
| be securing their money against the credit worthiness | | | | If the return is not high enough for them they are |
| of the borrower, just the equity of the property. | | | | also able to sell at a discount. Remember they are |
| This meant no more lengthy credit underwriting bank | | | | only lending 65% of the value of the property so if |
| reviews. Interest rates are much higher with a hard | | | | they take it back they can always sell quickly at a |
| money loan than with traditional financing, but | | | | discount in order to make quick money on the capital |
| investors are more than willing to pay the higher | | | | gains of the sale. |
| interest rates and points associated with acquiring | | | | Hard money commercial loans today |
| these loans in exchange for not being declined due to | | | | Hard Money has truly evolved. With the fallout of the |
| credit, job, or income issues. | | | | credit markets in 2007 this market has a new face. |
| Commercial Hard Money Loans Evolve | | | | In both residential and commercial markets, hard |
| Hard Money Loans filled a huge gap in the lending and | | | | money seems to have replaced a void left by the |
| banking industry. Investors were now able to obtain | | | | subprime market. Subprime is a whole other article |
| short term financing very quickly to purchase their | | | | but let us just agree that subprime was not only for |
| properties. | | | | bad credit buyers and therefore now that hard |
| These loans also became very popular with residential | | | | money is takign that market space neither is hard |
| lending over time. The average home owner through | | | | money. |
| mortgage brokers gained easy access to these loans | | | | These loans now can accomodate a wide variety of |
| which was advantagous to them for several reasons | | | | loan scenarios. It is no longer just for the foreclosure |
| as well. A loan of this type became an option for a | | | | bailout crowd or bad credit investors. The product |
| home owner who was falling behind in their mortgage | | | | can cover anything outside the normal local banking |
| payments. Traditional banks and lenders wanted | | | | guidelines. Private lenders are now allow CLTV's up to |
| nothing to do with someone that was not able to | | | | 90%! A commercial investor may only need to bring |
| make their monthly mortgage payments. Often times | | | | 10% of the purchase price and can still obtain a hard |
| these people only needed a short term reprieve to | | | | money loan. This means not showing tax returns, not |
| overcome some challenge they had been faced with | | | | waiting for lengthy underwriting processes, and |
| in their lives. | | | | getting their money fast. |
| This new loan allowed the home owner to refinance | | | | A commercial Lender today will often do their own |
| and catch up on mortgage payments. Their | | | | due dilligence and appraisals. They are streamlined and |
| payments inevitably rose even higher due to the | | | | have formula in place to quickly tell them if they will |
| higher rates, but the loan also allowed the home | | | | be likely to see a return on their investment. |
| owner to cash out up to 65-70% of the value of | | | | This product is becoming ever more popular in the |
| their home! This gave the home owner the power to | | | | mortgage industry. Non Standard sources flock to |
| pay off other debts, catch up on their mortgage | | | | hard money lenders to help them invest their money |
| history and then refinance again once they were in a | | | | including pension funds, insurance funds, etc. |
| better position to more traditional loan options. | | | | As mortgage brokers further infiltrate the commercial |
| Whats in it for the lender? | | | | market we are sure to see an explosion of hard |
| The lender has several incentives for their risks. The | | | | money commercial loans becoming available to more |
| most obvious is the interest the investor makes on | | | | commercial investors whos only access to commercial |
| his money. It is not uncommon for a hard money | | | | money in the past may have been their local bank. |
| lender to command anywhere from 10.99% all they | | | | |