Why Hard Money Loans Are Becoming So Popular

The effects of the recent mortgage meltdown are still being felt and conventional lending has come to a screeching halt for real estate investors. This puts hard money lenders in the position to make a fortune.

While it would be easy to blame selfish corporate bankers for the lending freeze, the problem is actually a little deeper. The strict lending rules and borrower criterion that must be followed was enacted to protect investors who buy loans in the secondary markets.

Allow me to explain: to insure banks always have money to lend; several loans are bundled into a group and sold to investors as a mortgage backed securities. This sale provides the original lending bank with a quick return on capital and enables them to lend the money again.

The investors who purchase these mortgage-backed securities do not have the privilege of meeting the borrower or reviewing their credit worthiness, therefore they must rely on the lender’s guidelines to ensure the integrity of the investments.

Prior to the mortgage meltdown, the lending criterion was much more relaxed, when the sun was shining and everyone was making hay. Now with the banking and mortgage industry on shaky ground, the rules were tightened to soothe nervous investors and encourage them to keep purchasing mortgage backed securities.

Unfortunately, now the banks are gun-shy. No bank wants to be stuck holding mortgages they can’t unload so they’ve almost stopped lending altogether.

However throughout this turmoil real estate investors are still working diligently flipping and rehabbing distressed properties and for the hard money lender this presents a fantastic opportunity to build wealth.

As a private lender there are no committees and your underwriting process can be as streamlined as you desire. There is no shortage of available clients and you will have the opportunity to cherry pick the deals that make the most sense to you.

For the real estate investor seeking financing, hard money is the perfect solution. These short-term loans provide swifter funding without jumping through the regulatory hoops imposed by conventional lenders. Truly a win-win situation.

Private Rehab Lenders Can Make a Fortune in Today’s Real Estate Market

The mortgage banking industry’s lax lending practices during the early part of the century changed banks from lending institutions into loan flippers because they sold every loan they made back to Wall Street.

Now as they struggle to set the market straight again, thousands of solidly built properties sit vacant. Property rehabbers and flippers would love to take these properties off the bank’s hands and turn a tidy profit and as a private rehab lender you can earn an even tidier profit helping these investors do just that.

One of the first economic concepts any of us learn is that of supply and demand. Unfortunately the balance is skewed; there is an abundant supply of properties but no one can obtain the money to rehab them.

The banks aren’t doing it; many of them have used the “TARP” money that was supposed to go into loans to purchase other banks or build reserves after getting their toxic loans off the books.

To the savvy private rehab lender this mismanagement of the corporate banking industry can mean real dollars in your pocket for years to come.

These days conventional financing doesn’t work for rehabbers and flippers. Since they are buying houses that need work it’s difficult to convince tightfisted bankers to assume the higher perceived risk on an investment property and if they are selling back to Fannie/Freddie the loan will not qualify for conventional financing anyway.

But there’s a lot of money to be made in private lending BECAUSE of the declining market and the perception that real estate is dead. In fact, you can capitalize on this market if you buy at the right numbers. Because so many have subscribed to the doom and gloom reports many of the rehabbers and flippers that were only looking for the quick buck have disappeared.

This means that the ones that are left are serious about finding profitable deals. If you’re looking for a way to profit in the real estate market without getting your hands dirty providing private rehab loans to other real estate investors can yield double-digit returns.

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Hard Money Lenders — “No Money Down” The Easy Way

Would it help you as a real estate investor to be able to
“Close For Cash in Days,” even if you’re tapped out
financially?

Hard money lenders are perhaps the best way to get 100%
financing with easy qualifying, money for fix- up, and fast
closings.

So what can hard money lenders do for you? Hard money
lenders make relatively short term (12-24 month) loans to
real estate investors for the purposes of acquiring the
property and rehabbing the property.

These loans are often funded by pools of private investors
that have been grouped together into a pool of capital by a
lender.

The hard money lender is looking for maximum return, and is
willing to take more risk for this return in the form of
easier lending standards.

If you strike the right purchase deal, you can even borrow
100% of the purchase price plus some or all of your repair
money by using hard money lenders. Here’s how it works.

Hard money lenders typically loan 65% of the ARV or After
Repair Value of the property when it is repaired or ready
for resale.

That 65% loaned by the hard money lender is calculated based
on the value of the property AFTER REPAIRS, not as it
currently sits, and not based on the price is being paid for
the property.

For example, Say that the owner is willing to sell me his
house for $60,000. The hard money lender’s appraiser agreed
with my assessment that the home could be sold for $100,000
once it was fixed up. That appraisal would allow me to
borrow 65% of the $100,000, or $65,000. I’m only paying
$60,000 for the property, so guess where that extra $5,000
goes?

Unfortunately, not into my vacation fund!

The extra loan proceeds go into an escrow account held by
the hard money lender, and I can draw it out as I do
repairs.

Remember, hard money lenders are not concerned with your
personal credit to the level that traditional lenders are.
They’re concerned with the property. They know that their
loan is fairly secure if you default.

What’s bad about hard money loans?

The fees are higher than conventional financing.

Hard moneylenders in my area charge 15% interest, and 5% of
the value of the loan in closing costs (“five points”).

Thus, on a hundred thousand dollar loan, there would be
$5,000 in fees to the lender to close the loan, plus
attorney’s fees and other charges.

Secondly, the loans usually are only good for 12-24 months.
After that time, you have to refinance. If you haven’t sold
it by then, you have to get a new loan, pay more fees, etc.
These are not loans to buy rentals with.

Another disadvantage is the fact that most hard money
lenders don’t figure the payments on a 30-year basis. The
longer the payments stretch out, the cheaper the payment.
They figure these loans on 15 or even 10-year terms. Thus,
the monthly payment that you must pay is much higher than it
would be on a conventional 30 year amortization schedule.

Also, hard money lenders are often more difficult to find
than traditional funding sources. As a gift, I have
compiled a national list of hard money lenders at my site to
solve this problem for you.

Finally, most hard money lenders require a pre-payment
penalty that must be paid if you refinance or pay off the
mortgage before a given amount of time. Fortunately, this
time period is often fairly short. For example, the hard
money lender that I use has a two month pre-payment penalty
period. Even if I am not going to do much work on the
property, and have a contract on it quickly, I can just set
up the closing for after the pre-payment penalty expires.

In conclusion, hard money lenders present an attractive
option for investors to succeed without having to resort to
the late night TV creative hype that we’ve probably all been
exposed to. If you can qualify for traditional financing,
and your seller is comfortable with a longer closing window,
you may want to stay with conventional financing.

However, if down payment money is tight and your credit is
not perfect, or you need to close very quickly, hard money
lenders may be a viable solution since they will allow
almost anyone who can find a good deal to purchase a
property extremely quickly, with less red tape, get money
for rehab, and have virtually unlimited access to cash.

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A Hard Money Real Estate Loan Just Might Be What You Need For A Quick and Easy Property Acquisition

A hard money real estate loan is one that in most cases will be secured by land, dwellings, buildings or other types of real estate. Sometimes they are secured by other assets. They are typically used by investors because of the gaps created by banking industry red tape. This type of financing differs from conventional financing in several ways. All of which are important to the would-be investor.

Real estate hard money loans are offered by private lenders. They can conclude a transaction faster than a commercial bank. If you go to a bank to apply for a loan, you meet with an employee who takes your information. Often, you will not have all of the information that you need, so you will be required to make additional trips to the bank. Sometimes, the employee will forget something and you will make another trip to the bank. Just the application process can take weeks and still, you might get turned down.

The banks have been having some financial problems of their own, lately. Large numbers of defaulted loans have reduced their currency reserves and the federal government will not allow them to continue to make new loans if their reserves fall below the minimum. Many banks are refusing more applications than they approve. Some are not approving any new loans at all. Private lenders do not have the same problems. So, a hard money real estate loan is faster and easier to get, but there is another reason that this type of funding is becoming more popular.

You may have heard or seen advertising from real estate investors that want to teach you how to buy property with no money down. Usually, they are selling books, videos or promoting seminars. What you will learn is that you find a property that needs some work, maybe a lot of work. You determine what the property would sell for in “mint” condition. You make the seller an offer or get them to hold the property for you while you find financing.

So far, so good, but if you go to a bank for a loan, you will be required to make a down payment, typically 20% of the price and you will pay closing costs out of pocket. The bank will not finance the cost for repairs, so if you get a bank loan, you will need to use your own savings or capital for rehabbing. In order to truly buy no-money down real estate, hard money loans from a private company are the only way to go.

If the after repair value is right and the purchase price is right, rehab funding providers will roll in the closing costs, the costs for repairs and the purchase price. This is what allows you, the real estate investor, to buy property with no money down or at least very little. They even have free advice for investors about how much to offer the seller and how to determine what the fair market value will be after you finish the repairs. In other words, they help you figure out what your profit will be. That can help you decide whether or not the property is a good investment after all.

So if you have your eye on a property and you have to act fast, real estate hard money loans might just be the solution for you.