What You Need to Know About Hard Money Loans
You may have heard the term Hard Money used when talking about real estate loans. So what is it? Hard Money, also known as Private Money, is a term used to describe loans that are made by private individuals or entities. They are used frequently in California real estate transactions.
Private money differs from conventional loans in that private money, or hard money, is based solely on the property’s collateral. That is why it is commonly found that these loans are written way beneath the actual value of the property concerned. Basically, the investor wants to ascertain that the available equity would be enough to cover any loss or default by the borrower.
As mentioned above, hard money loans are usually provided by private investors. But they are also provided by private institutions and entities as well.
You may have wondered if private money is the right solution for you. There are many variables that make up this answer. First, you should always try conventional sources of money first. These would include national banks, regional banks and credit unions. These channels will offer the most competitive pricing and terms to your average borrower.
Sometimes, for various reasons, banks choose not to finance your transaction, in which case you could then look into whether you qualify for private money loans or not. Before you will be considered you will need to show that there is sufficient equity in the transaction, as well as your ability to repay the loan at two or three times the amount in interest and other fees.
This may well cause you to question the logic of utilizing private money. But there are times and occasions when using this type of loan makes sense. Reasons for using private money would include:
When you require a Bridge loan.
You’re an investor who needs cash to buy property.
You need to rehabilitate an existing property for the purpose of selling.
If you are in short escrow and you need to purchase without delay.
For financial reasons you need to access the equity in your property.
You have a bridge loan that needs an extension.
You have many properties and a bank will not finance any more.
You have approached the banks but they have refused you finance because you have a unique property.
You have troubled credit but a strong equity position and the ability to repay.
You require a temporary cash flow for your business.
Like most things in life, there are advantages and disadvantages of private money. Hard money is typically expensive and has shorter terms than most bank loans. However, the speed and flexibility in which these loans can be done is extremely valuable. It can be a useful tool for some borrowers’ California real estate loan needs.
Hard money is not hard at all! You will find that it is much quicker to obtain a loan that way than through the conventional means. The problems come in when one considers the fees and terms and conditions that are usually attached. Whereas it is not the best choice for some, for others it can be the answer that they have been looking for.