Hard money lenders provide commercial and residential real estate investors with short-term financing for real estate projects.
Unlike traditional banks who are concerned about a borrower's credit score or employment history, hard money lenders are more interested in the value of a borrower's collateral asset.
Some real estate investors find hard money loans to be a confusing topic and therefore we have compiled a list of the 10 most frequently asked questions hard money lenders are asked on a daily basis.
How Important is Good Credit?
While credit is not the most important factor when getting a hard money loan, most lenders will still pull your credit.
As long as there is a good explanation for a low credit score, it will not impede your chances of getting a loan.
Can I Get a HML on my Primary Residence?
Unfortunately government laws prohibit hard money lenders from lending on people's primary residences.
Only loans on investment properties are permitted.
Are Hard Money Lenders and Private Money Lenders the Same Thing?
While hard money lenders and private money lenders share many similarities, there are a few differences that set them apart.
Private lenders are wealthy individuals who fund a project independently.
Hard money lenders are companies, usually with much more capital to dispose than an individual private lender.
What is the Usual Term Length of a HML?
HML's term lengths range from 6 to 60 months.
Most loans expire after 12 months.
Note that some lenders have prepayment penalties.
How Many Points and How Much Interest are Charged?
Expect interest rates to range between 8% to 15%.
Interest rates depend on the state you are in, property type and amount of LTV.
Origination points range from 1-4 points with direct lenders.
Lenders usually charge more points on smaller deals.
If going through a mortgage broker, 5 points or more are possible.
How Much Money Do I Need to Put Down?
Hard Money Lenders will want borrowers to have skin in the game.
Most lenders will require a minimum of 20% down.
Borrowers should keep in mind they will need money for closing costs as well as other unforeseen expenses.
How Long Does it Take for a HML to Close?
One of the biggest advantages to using a hard money lender is speed.
Many hard money lenders can provide funding in less than 1 week.
What if I default on a HML?
Defaulting on a hard money loan will result in the lender taking the property and selling it to pay off the outstanding balance on the loan.
Do HMLs Require an Appraisal?
Most hard money lenders will require an appraisal of the property.
The appraisal will be done by the hard money lenders appraiser and not the borrowers appraiser.
Oftentimes the hard money lender will require the borrower to pay for the appraisal.
Is an LLC Needed for a HML?
It is common for some lenders will require the loan to be issued to an LLC, but this is not the case for every lender.