The Pros and Cons of Becoming a Hard Money Lender

Hard Money will be given to you if you have no place to go. Your credit scores are abysmally low - below 620; Consider the 300-400 range. You have a history of defaulted, late prepaid payments, missed repayments, bankruptcy (under your crowd of crimes). No lender would accept you. Those are the worse scenarios. But you want that house.

Hard money lenders can consider you.

Why?

Because they look is the value of your home instead of your credit rating or history. Of course, some can do something about it, but at the end of the day, the calculation is based on the value of your collateral: how promising it is and whether it will compensate the lender's money.

Hard money loans range from anywhere to $ 20,000 to $ 150,000, or more, depending on the money of the lender. Most loans also close to 6 months to 2 years, although you can find some that offer options for longer terms or for later payments. Loans also differ. You will find a variety of commercial to rehab for so-called social loan and personal affairs. These are the most common.

Hard money loans are also called 'bridge', 'rehab direct loans' or 'personal' because the lender gives you money that bridges you, whether it's a home (or related emergency) Loans from your own pocket. The benefits of the hard-weather scenario are that the process is flexible, smooth and fast. Lenders set their own terms that are usually customized to suit you. Skinny paperwork is filled in and the whole happens in as little as 7-10 days. Disadvantages consist largely of the high interest rate and the low loan to value ratio. Hard money lenders need to be certified by organizations such as the American Association of Private Lenders (AAPL), through their state regulatory agency and through the National Mortgage Licensing System (NMLS).

Definitions you may need to know

Bridge loan - This is a short-term loan to bridge the interval between the purchase of a property and sell another. A typical mortgage loan is for a short-term loan of 6 months or less, although the time limits vary.

Rehab loan - This is a short term loan to improve a home for refinancing or sale. Borrower shows the lender the building milestones and results as he gets into construction; Funds (held in the escrow) will be released accordingly.

Housing Loans - This kind of loan is for buying a private property - usually one where you want to live. Consumer protection agencies and federal governments have issued a set of rules to protect you. There will be more while writing this.

Commercial loan - for buying real estate that you want to repair and flip for commercial purposes. These usually involve greater risk because they are more expensive to buy and engage with years of stretched and expensive labor. Banks are more reluctant to support them; Hard money lenders are generally more enjoyable because they tend to promise more profit.

How hard money is going to work

You want to set up a business plan listing your experience, promise of the property and why you think it's a promising investment. The lender will investigate the agreement, analyze the properties and qualify. If she accepts you, she will charge you your costs and interest. You will be notified of a balloon payment scheme, which means that you will refund a little larger amounts with a substantial payment as soon as your loan is mature. If you do not make this refund, this means that the lender will collapse your collateral. You can also choose to refund regular monthly payments or pay a lump sum at the end.

The pros and cons of investing in hard money

Your return is invincible against the fluctuations of the shares, global politics or even long-term real estate developments.

No need to buy or manage the investment property with which you invested your money.

You can prove to earn predictable rates without having your money held for a while. (Private investors generally get a fixed rate of 8-14% per annum at no cost, although the terms vary according to the lender and individual transactions.)

You have absolute control over your loans. You choose your borrower and investor. You decide if you want to borrow certain customers or not. You also select your financing partners.

There are also disadvantages of a bridge loan or a hard money investor:

Research is required: You must have an excellent understanding of property laws and property values to succeed in this highly risky field. It is much more worth finding the services of a proven, reputable company that finds, analyzes and merges the deals. Timeframe: You must continue to apply to one loan loan after another (as each has a short-term applicability). Ideally, you work with a company that can do you many transactions over time. Risk: All investments are at risk, but this is particularly risky, especially if Murphy occurs - your income is changing, the market changes, your partner divorces, Child dies - who knows what the fate has in mind for you. Result: You lost money and real estate.

Please comment below of what you think.

6 comments

Excellent and well-written article. Love your site and thank you for sharing your wealth knowledge.
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Interesting post. Why do people want to be a hard money lender?
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Korianne Mar

They get much better return on their capital and the money is secured by the 1st lien deed on the property. They charge between 10-14% interest rate depending on the risk they're willing to take. Some of them can be aggressive to lend up to 70 LTV (Loan to Value) of the property. That means 100K property, they can lend you up to 70K. They also charge high point fee between 1-5% at the time of the loan is closed.
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Korianne Mar

Hi Juia, I'm glad that you find my site is useful and please come back for more. If you know of anyone who is interested to learn about cash flow income producing properties as a way to achieve financial independence, let them know about my site.
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Julie Carr

Do you recommend a new investor to borrow hard money lender for their first buy and hold property?
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Korianne Mar

Julie, I only recommend you borrowing hard money if the project makes money for you. It's expensive to borrow hard money. Make sure the property has enough profit to cover all the costs and still have some profit left for you. If you decide to hold the property, then you must refinance after you have a tenant place in the property. Refinance with a traditional lender that offer lower interest rate compared to hard money lender because the rate of hard money lender is usually at 9-12%. You will not have the monthly cash flow to buy and hold with hard money lender loans. Hard money loans are short term loans (6-12 months period) so you can either fix and flip to make a profit and if you want to hold then refinance with traditional lenders for lower interest rate.
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