Who are Hard Money Lenders?
When many people need to take out a loan, their first thought is usually to go to a traditional
lender like a bank. Unfortunately, bank loans have become notoriously difficult to obtain,
especially with stricter federal regulations in the past decade. In addition, the long-term
conditions of a bank loan may not be the best fit for your financial needs.
If a bank has ever deemed your loan request too risky or you needed to borrow money sooner
than a bank could lend it to you, your needs might be better met by a hard money lender.
Hard money lenders are private investors who specialize in short-term loans, usually backed by
real estate. Term lengths for these kinds of loans, called “hard money loans,” are typically about
12 months long, though in some cases they may extend to anywhere from two to five years.
One of the most important considerations for a hard money lender is the value of the property the
borrower is trying to work with. A borrower’s credit score, though not insignificant, is of lesser
concern. For borrowers who are deemed too risky by a traditional lender, then, hard money
lenders can be a lifeline.
What types of properties can I get a hard money loan for?
A hard money loan can be obtained for almost any kind of commercial real estate. These types of
properties include commercial buildings, single-family residences, multi-family residences,
industrial sites, and even undeveloped land. Depending on the kind of property you plan to work
with, you want to find a hard money lender who specializes in that niche market. This is where
CREFi comes in. We’ve done the research and created relationships with lenders of all kinds, so
we can get you set up with the right, trustworthy source with little hassle on your part.
When would a hard money loan be better for me than a traditional loan?
The main reason most real estate investors prefer hard money loans to traditional loans is
because they are funded quickly with less regulations. Traditional bank loans typically take
30-45 days to fund while hard money loans can take days. In addition, real estate projects often
don’t meet the strict requirements for a conventional bank loan. Since hard money lenders don’t
have the same institutional restrictions as banks, they are usually easier to work with.
Sounds good! What do I need to secure a hard money loan?
Most hard money lenders are not as concerned about the borrower’s credit rating. Instead, they
are most concerned about how much of a down payment the borrower is able to make on the
property and the value of the property itself. Since the property itself is used as collateral, hard
money lenders are usually willing to overlook short sales, foreclosures, and other financial issues
on the borrower’s record as long as the borrower can make the down payment.
This type of loan is also beneficial to borrowers, then, because they don’t have to risk losing
their house, car, or other valuable commodity by putting it up as collateral for the loan.
Of course, as with all loans, borrowers also need to have a solid plan for how they will increase
the value of the property enough to pay back the loan with interest.