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Hard Money Financing
By G. David Lapin On June 13 2023
Hard money financing, also known as hard money loans or private money loans, is a type of short-term loan that is secured by real estate at a higher interest rate.
Here are some key characteristics of hard money financing:
1. Asset Based lending: Hard money loans are secured by real estate assets, such as residential or commercial properties. The value of the collateral plays a significant role in determining the loan amount. Experience of the borrower is key too.
2. Speed and flexibility: Hard money loans are known for their quick approval and funding process. They are often used in situations where a borrower needs immediate access to funds or when traditional financing options are unavailable.
3. Credit history is less important: Unlike traditional loans, hard money lending focuses more on the value of the collateral rather than the borrower's credit history. This makes hard money financing an option for individuals with less-than-perfect credit or unique financial circumstances.
4. Higher interest rates and fees: Due to the increased risk associated with hard money loans, private money lending typically charges higher interest rates and fees compared to traditional lenders. These rates can range from 8% to 12% or more, depending on the lending company and the specific loan terms.
5. Short-term loans: Hard money loans are usually short-term, typically ranging from a few months to a few years. They are commonly used in real estate transactions where the borrower plans to sell the property quickly or secure long-term financing. Long Term financing may also be an option too.
6. Loan-to-Value (LTV) ratio: Hard money lending typically offers loans based on a percentage of the property's appraised value, known as the loan-to-value ratio. The LTV ratio can range from 50% to 70%, depending on the lender's risk appetite and the property's condition.
7. Exit strategy: Hard money lending often requires a clear well thought out plan or exit strategy from the borrower. This may involve refinancing the loan with a traditional lender, selling the property, or using other means to repay the loan in full.
For more information on our Hard Money Loans or Trust Deed Investments, call our office at 714.838.1474 ext. 102 or visit our:www.hanovermc.com
Hard money financing can be useful for real estate investors, house flippers, nonprofits, corporations, LLC's or individuals who need quick access to funds but have difficulty obtaining traditional bank loans.