Many people who invest, seek alternative financing that doesn’t indulge their local bank and may be acquainted with the term ‘hard money’. It is a short term loan that can be obtained from private individuals at terms which are more stringent than a typical loan. Even if the terms are strict than ever, this type of private loan for real estate usually has more lenient criteria.
The Big Picture of Hard Money Lending
This type of loan is another way an investor can raise money for their real estate projects, which is way out of league of the traditional mortgage. It is a short term loan which secured from private individuals or investors when compared to other conventional institutions such as credit unions or banks. Hard money lending is implemented to improve or renovate a property and sell it away. Considering the fact that you can get a loan in a matter of days, hard money lending is a good choice for real estate developers and house flippers. It is also an ideal option for the investors who only need to make some quick fixes to raise the value of their property, and then secure another loan on the basis of the new value to pay off the hard money lender.
Hard Money Lending Versus Other Loans
The primary difference between hard money loan and others is that the former subject doesn’t focus on your credit history as collateral. Rather than this, the lenders will determine the value of your property as a determining factor, centralizing on the after repair value or ARV. ARV is referred to as the worth of the property once the renovations are accomplished. Other differences are as follows:
- Hard money lenders avoid investing in primary residential places. The owner-occupied primary residences are subjected to many rules and regulations which increase the risks for the lenders.
- Hard money lenders avoid lending money to just government sponsored enterprises that are deeply involved in the mortgage industry. As a matter of fact, lenders sometimes use their own money or generate it from a group of investors. The money they lend is on the basis of their property specialization and the risks which are calculated and affordable as well.
- Hard money loans are considered as short term loans. You do not have the privilege of 15 to 30 years to repay your loans. Hard money loans are liable to be paid anywhere in between 6 to 18 months.
- Hard money lenders work and operate on their own lending criteria. For instance, a private lender could be anyone of your acquaintance like a friend, family or business associate. As a matter of fact, they may not possess any kind of preset criteria prior borrowing the money, providing you more flexibility when it comes to negotiating terms. On the other hand, hard money lenders work and operate with a particular set of upfront point, defined duration and interest rates.
If you are looking for hard money loan, feel free to get in touch with Capital Fund 1.