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Understanding Hard Money Loan Options

Real estate investors rely on the properties that they purchase to produce income. While a strong buyer’s market certainly favors investors, it does take a great deal of financial savvy to successfully navigate real estate investments. After all, conventional financing, such as the FHA loans used to purchase residential homes, often aren’t available to investors. Instead, many investors turn to private money lenders – also known as hard money lenders – to finance their purchases.

Hard money loans, which are also called private money or equity-based loans, are designed to meet the needs of real estate buyers who can’t use traditional financial products. In many cases, banks and other lending institutions won’t finance real estate purchases because they don’t meet stringent criteria about the types of properties that qualify for financing. In other cases, individuals are unable to secure financing because of past foreclosures or credit problems.

Buyers and investors who want to purchase real property but don’t qualify for traditional financing may be able to utilize this type of private financing. Before you apply for one of these private loans, it’s essential to understand what types of products are available.

Fix-and-Flip Loans

True to their name, fix-and-flip loans are designed for investors who want to buy properties, rehab them and sell them at a profit. These homes often don’t qualify for FHA financing because they need too much work. Fix-and-flip loans are widely used across the nation and can be utilized by both new and experienced investors. Most hard money loans designed for fix-and-flip properties can be used to finance both the purchase price and the cost of repairs. These loans may also be referred to as residential or commercial rehab loans.

Bridge Loans

Bridge loans are a type of private money loan used by business owners to cover gaps between their operating expenses and available funds. A business owner might choose a bridge loan to pay a big COD or to own a property free and clear. These loans are also a good alternative when a bank won’t refinance a mortgage.

Ground-Up Construction Loans

Some investors want to build innovative properties but can’t find the financing to do so. Private financing for ground-up construction can provide the funds needed to purchase land and complete construction projects. These types of loans are often used by investors and business owners who want to build specialty properties that are difficult to appraise or are perceived by traditional lenders as high risk.

Commercial Hard Money Loans – Debunking The Myths

While commercial hard money loans might sound as if they come out of a Mafia movie, there is nothing dangerous or especially risky about being granted one of the many commercial loans that are on offer by the different independent financial institutions.

What are Commercial Hard Money Loans?

The word ‘hard’ can be misleading for many people who are applying for this sort of financing. All that it means is that the loan is guaranteed by an asset or a piece of immovable property. The loan will be granted on the strength of the value of the asset in question. Many developers use these type of loans when they are attempting to develop a piece of land into a commercial property that has investment potential as well as the potential of future earnings that will more than cover the loan amount.

The value of these loans is that they are usually funded by private investors. It is worthwhile finding a company who is able to match up potential investors to loan applicants. They will ensure that the loan is completely legal as well as being secured by the property itself and not the personal assets of the owner. Most of the private investors in America today are likely to be private firms who consider that issuing commercial hard money loans is a way of doing business that guarantees them a substantial return on investment. These loans are not usually granted over an extended loan term.

This type of loan is not like a conventional mortgage that is repaid over 30 years. The term is usually between 1 and 5 years and the interest rates are much higher than a conventional loan. While the top end of the scale of interest rates can reach up to 15 % it is still a way of obtaining finance for an investment without having to wait for months or go through an extensive process of paperwork and credit checks.

It is always wise to remember that commercial hard money loans will not cover the full value of the property and it is unusual to find any commercial hard money lender that will over about 60% of the value of the property. If you are buying property then you will have to fund the difference from another source or be prepared to fund it yourself. Commercial hard money loans are granted based on a logical and achievable plan to pay the money back on time and most commercial hard money lenders will need to see a considerable amount of property related experience.

They will not be inclined to lend money to first time investors, unless the risk is very low. Commercial hard money loans are a solution to investment opportunities that many banks have refused due to the economy.