Hard Money Loans – The Last Resort

Difficult to come buy and carrying a high price, hard money loans are the last resort for those who can afford it.

Let’s start with a quick comparison of conventional loans to hard money loans to create a distinction up front.

Conventional loans are the tool of most home buyers. Lending institutions loan money to the buyer based on credit history and income. Hard money loans are less dependent on credit score and revolve around assets, instead. There should be no confusion that one is a substitute for the other. When buying a house there are many choices in loan options, but the choice between conventional or hard money is not one of them. Hard money loans are for unique, often distressed situations.

Hard money comes from private investors who can take the time to assess a borrower’s entire situation, in a way that traditional lenders cannot. The private investor understands that a few missed payments resulting from something like loss of employment, does not mean the buyer cannot repay his loan. This is a perfect scenario of when hard money works. When the homeowner has fallen so far behind on his mortgage that he cannot catch up even though he has gone back to work and resume payments, the private investor can come in, provide hard money to pay original mortgage off, offering the borrower a chance to start fresh and preserve his credit. Soon the damages of the missed house payments are repaired on his credit report and he can refinance in a traditional manner.

The reason for refinancing as quickly as possible is that hard money loans carry stiff terms. Interests rates average between 10% and 18% making it a costly option, albeit a valuable one.

Another motivation to use hard money which is relevant in markets driven by foreclosures is rehab purchases. Investors find a great property to renovate quickly for profit and they want the loan fast because there is already a buyer for the house when it’s done. The hard money loan is available much quicker and without the red tape of a traditional loan.

Don’t be confused, though, hard money loans are not a simple alternative for those with poor credit. Even private investors aren’t interested in a borrower with a history of bankruptcy or non payment. In addition, the closing costs on a hard money loan must be paid up front. These fees could be a couple hundred dollars or a couple thousand, making the hard money loan a non choice for most borrowers in distressed situations.

Hard money loans are difficult to come by. The loan to value rate is a relatively low 50 to 75%. Hard money lenders like to only finance properties that are nearby them in areas they are familiar and comfortable with so they can monitor the property. Be wary of a hard money lender who makes things look too easy and shiny, as there are individuals who prey on homeowners and set up situations that guarantee failure so they can seize the house and profit from its sale.

If you fit into one of the unique scenarios that would benefit from a hard loan, do your research before signing any papers. Get recommendations on the private lender when you can. With no bank regulations on private lending the only one who can separate a legitimate lender from a loan shark is you.

Commercial Bridge Loans – Basic Facts Regarding Hard Money Loans

You’ve found a great opportunity to make some money. You’ve heard about hard money bridge loans but you don’t know what to expect? Here are some of the basics:

The biggest advantage of a bridge loan is the lenders are always concerned about the value of the property, not so much you personally. In other words; the property is what secures you the loan not your current credit status. It’s all about the value of the property.

The life of a bridge loan is approximately one to six-months; although you can get an extension of up to 2 or more years. Again, these lenders are not your average banks. The flexibility of this type of loan is why you will either get approved (or not) in as little as 2 days.

You may be asked by the lender why are you looking for a hard money loan instead of a traditional loan? There are many reasons why someone may consider using hard money loans. Most likely your response will be because you need the money now and not three months from now when the window of opportunity has most likely closed, or you may respond that your credit has some blemishes, filed recent bankruptcy, low occupancy levels, etc.

Some of the things your hard money loan lenders want to know will be: the type of collateral, the location and approximate value of the property, the amount owed and most important, the exit strategy of the loan or how will you pay the lender back.

Most bridge loan firms want your business and will work with you to get you 60% – 75% financing. (In some cases you can get 100% financing if you have additional assets to put into the deal.) In 99.9% of most cases, the hard money lenders are private companies, and you won’t typically get 100% of the value of the property. The low loan to value is in place to protect the lender in case of default on the loan.

Be prepared though, the interest rate on hard money loans is much higher than on traditional loans. Expect 10 to 15%, depending upon the overall risk. There will also be points or origination percentages that range between 1 and 5% of the loan amount set forth by the lender and assessed at the close of the deal. However, the higher interest rates, flexibility, and the quick turn-around often offset all the paperwork and time involved with traditional banks.

Some hard money lenders charge a fee for pre-payments, some charge an exit fee for the loan and others charge nothing. Make sure you know exactly what the terms of the proposed loan are before engaging any lender. A detailed letter of Intent is an excellent way for you and the hard money lender to understand exactly what is expected by each party.
One more thing, if you are not familiar with bridge loans do some in-depth research first. Talk to others who have experience with hard money bridge loans or ask your lawyer for some help. Don’t forget, there is plenty of information on the web that you can use to your advantage.

Land Financing & Home Loans

There are many things you need to know before applying for a home loan or for land financing. You can approach your local bank or any one of the many lending institutions available. This form of financing is great, as it prevents your money from being stuck until you can make enough to pay back the loan amount.

Home Loans

Home loans are required to finance the purchase of a residential property. There are certain criteria that need to be complied with to be eligible for a home loan:

o You have to be an Australian citizen or a permanent resident returning to Australia.

o A migrant or an employee on an Employer Sponsored Visa (temporary or permanent; most subclasses can apply).

o A migrant on a Permanent Skilled, Skilled Independent or a Skilled Independent Regional (Provisional) Visa (most subclasses).

o A non-resident of Australia can also apply if they want to invest in Australian real estate. You have to have an ongoing income from employment, investments/rental property or have other sources of income.

o If you are an investor, have Business Skill or a Talent Visa (most subclasses), then you can apply for a home loan.

o If you have a business in your country of origin or in Australia for the past two years, you are eligible.

The above listed criteria is only to check whether you are eligible for a home loan or not. If you are, then you will need to fill in the application form provided by the financial institute of your choice. Every institute has its own terms and conditions, which should be all right with you. Once you agree and fill out the form and submit it, the company will then consider your application. If it is approved, only then will you get the first disbursement of the loan.

Land Financing

Land financing is required by construction companies and landowners. There are two types of land financing available; let’s discuss these in detail:

Standard Draw Down

This land financing loan is for construction purposes. These funds are used for residential or commercial properties. The lender company will see if the planning permits, building contracts and stamped building plans are in order and allow the owners to apply for a loan. A construction loan advance is given to the maximum tune of 70 percent of the building valuation, although the norm is to take around two-thirds of the property value.

Land Development

These loans are to help the construction company acquire the land they will require for the construction. Also, the company requires funding for the development of the land before it can be constructed upon. Lenders give loans amounts which are two-thirds the land value. Approaching a lender before commencing construction, though, requires the submission of the stamped plans; fixed price building contract, permits and sometimes even the pre sales must be submitted. Most companies don’t offer such lending services, so please confirm and also enquire about their terms and conditions.