Have you ever wondered what a “Hard Money Loan” or “Private Loan” actually is? Before discussing what these terms are it is important to talk about why a borrower might not be able to utilize traditional lending sources.
The recent financial crisis has taken a toll on many borrowers’ credit and cash flow and therefore many do not qualify under the new bank guidelines. Banks and traditional lenders are still focusing their efforts on A borrowers and A properties leaving many borrowers scrambling to obtain financing. For example a borrower’s credit might be under 600, but they are still unable to get a loan even though they have a residential investment property with substantial equity. It is frustrating that most traditional lenders would not be able to fund this transaction even though the transaction makes sense for both the borrower and the bank.
Fortunately there is an alternative to the rigid underwriting of a traditional lender. These non-prime loans are commonly referred to as private loans or hard money loans. I am commonly asked why these loans are called private loans or a hard money loan. First, lenders doing non-prime lending these days are privately funded and therefore not regulated like a traditional bank. They are therefore able to do loans that make sense since they are funding with their own cash. This leads into the second term, hard money loans. Loans are commonly referred to as hard money loans since the lenders use the “hard asset”, traditionally real estate, to secure their loans. Most hard money lenders, like Fairview, focus on investment single family homes (no primary residences) or commercial property up to 50-60% loan to value (LTV).
As stated above, hard money lenders are privately funded and therefore not regulated like a traditional bank. This raises the question of how do you successfully get a hard money loan closed. Below are five key tips when obtaining a hard money loan:
1. Be wary of unreasonable upfront fees:
2. Be mindful Brokers masquerading as actual lenders
3. Make sure the borrower provides full disclosure of all material items
4. Be wary of the Bait and Switch
5. Make sure the terms of the loan are in line with market realities
By Glen Weinberg
COO/Partner Fairview Commercial Lending
Read the entire article with details on each of the tips below: 5 tips for Hard money success
Fill out a one page loan application with no upfront fees: One page loan application
Watch a recent interview to learn more about hard money lending: Hard money lending video