The basics of hard money lending
Hard money lending is a great option for investors in real estate who are looking for alternatives to banks. Banks often have set criteria when it comes to offering loans. If you feel that a bank is unable to loan you capital on the right terms, you can look at hard money lenders to find a loan. You would also need to know a few basic facts about hard money lending.
Ideal for investors
Hard money loans are typically aimed at investors who are looking to buy, renovate, and sell theproperty. Since banks may not service this type of borrower, they can turn to a hard money lender to offer them the required financing.
Property as collateral
Hard money lenders will look at the value of the property rather than your assets as collateral. This is one of the reasons lenders are very particular about the type of property you are going to purchase. If the borrower fails to repay the loan, the property they invested in can be liquidated for loan payment. This also makes it easier for investors with less than outstanding credit history to get a loan on the property.
Very short loan terms
Traditional mortgages mature in 15-30 years. A hard money loan however, has a term of around 6 months. Some loans have even shorter terms. Thus, the loans are suitable for investors who are looking to rapidly purchase, renovate, and sell property. This works well for investors who want to take advantage of property prices within a short time frame.
Hard money lenders will lend you their own capital, and do not raise it from third parties. However, it is okay to use brokers to find a lender. Brokers are not involved in the actual loan processing, and will simply help you find the right lender.
While hard money loans may be suitable for some types of investments, they are not suitable for all borrowers. As such, borrowers need to closely study the loan terms and conditions before they approach lenders. Hard money lenders are particularly focused on the risks of the investment. They will therefore have conditions such as loan term, interest, property value at time of selling, and monthly payments.
Not for residential properties
Legally, hard money lenders may offer loans only on property that is meant to be an investment or is to be used for commercial activities. Therefore, if you are planning to buy property that you plan to reside in, a bank is the more appropriate lender. A hard money lender can lend money on residential buildings that you plan to invest in, or rent out. Also, you can purchase smaller homes including single family units, only if you do not plan to live there. It is important to be clear about the goal of taking out a hard money loan.
If you need a loan quickly, are sure that you have a good investment at hand, and need to sell the property fast, a hard money lender would be the right person or firm to approach. Universal Commercial Capital offers loans to investors looking to buy commercial or residential real estate.