Real Estate

A hard money lender may be right for you

A hard money lender (HML) is a person or company that offers a specific type of collateral-backed loan. In general, they grant short-term capital loans, these loans offer financing and/or cash depending on the value of the guarantee. The collateral for the loan can be almost any item: cars, boats, planes, real estate, paintings, tangible assets, etc. Hard money lenders pay more attention to the value of the item than to the borrower’s ability to pay. This practice is different from standard lending institutions that require a FICA score, debt-to-income balance, and other parameters.

Rates and Charges

HMLs have a variety of different rates, fees, and terms that you should familiarize yourself with. They are more expensive than traditional advances because they are not based on usual credit guidelines, which protect investors and banks from high default rates. Therefore, the rates and fees are typically much higher than predictable mortgages, typically ranging from 8 percent to 15 percent, depending on the down payment amount and duration. In addition, there is usually a commission to process the loan, which ranges between 3 and 10 percent, which is known as a “points” payment. Actual rates may differ from state to state depending on your state’s usury laws.

federal guidelines

Although you do not have to go through the typical paperwork process that accompanies a regular mortgage, federal law requires all HMLs to verify the borrower’s “ability to pay” under the Dodd-Frank Act of 2010 on all advance payments. residential property. . This documentation may not be as stringent as conventional required documents, and the lender may view the paperwork differently, but borrowers will still need to provide a tax return and bank statements.

Loan Duration

The time limit for this short-term agreement is approximately 6 to 24 months.

Why use an HML?

Private companies and individuals who do these short-term finances generally do so to finance real estate deals. Also known as “private money loans,” these grants can be an important source of financing for real estate buyers in need of short-term capital. One of the things to consider is how quickly the funds can be made available. Often, when you find a good investment property, you’ll need to act quickly. Your ability to gain access to capital quickly can make the difference in a deal. Soft money or conventional advances take 30 days or more, and sometimes that’s too long. Hard money is great for beginning investors who may not have the capital or those with a poor credit rating. This deal is also a creative way to buy property and make a profit. You buy the property, fix it up and sell it at market price.

How to find a hard money lender? There are hundreds waiting for it to end. It could be someone you already know. Many of them probably advertise in your area.

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