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Before jumping into locating a hard money lender it is important to define the term “hard money” . What is a hard money loan and when is it best utilized? This guide will also discuss hard money verse traditional bank lending, highlight tips for finding the right lender, and finally provide additional resources. At Fairview, we believe educating both the borrower and mortgage professional is paramount. Hard money is a unique product that is very different than a traditional loan, the guide below was created to help both borrowers and mortgage professionals navigate non-conventional lending and ensure it is an appropriate fit for their unique situation. See below for a quick guide to hard money lending
What is Hard Money?
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The definition of “hard money” when referred to in real estate financing, is essentially a loan secured by an asset as opposed to the borrowers financials, credit, etc…. The name hard money is frequently interchanged with …..
The name hard money is frequently interchanged with ….. “no-doc” , private loans, bridge loans, private money loans, etc… For a hard money loan, the underwriting decisions are based on the borrower’s hard assets (real estate). A first mortgage is used as collateral for the loans on either a residential or commercial property. There are other types of hard money loans on inventory, equipment, etc… but since we focus on real estate we will not go into these variations here.
Since the lender is not relying on borrowers credit, etc… the asset is evaluated to ensure there is ample collateral to secure the loan.
Hard money loans typically close relatively quickly (for us typically in under 5-10 days) without the headaches or time required of a conventional loan. Fairview Lending is a hard money lender focusing on first mortgages on residential investment properties (GA, CO, FL) and commercial properties (GA, CO, FL, IL)
Hard Money verses traditional lending
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Traditional loans from banking institutions rely heavily on borrowers income, credit, tax returns, etc.. as opposed to hard money’s primary reliance on the hard real estate asset. Along with requiring substantially more documentation, conventional lenders …..
Along with requiring substantially more documentation, conventional lenders ….. have minimum credit scores (typically mid 600 Fico and above) as opposed to hard money loans that are underwriting on the collateral as opposed to the borrowers credit (Fairview Lending has closed loans with FICO scores in the low 400s). All our underwriting is done in house so we don’t require an appraisal or extensive documentation which enables us to close transactions quickly with no upfront costs to the borrower.
Along with different underwriting standards, loans on conventional commercial loans can take months to close, hard money commercial loans close much quicker with Fairview we try to close in 5-10 days. The final important differentiator between hard money and conventional financing is the interest rate. Since there is more risk in a true collateral based loan, the interest rates are higher than a conventional mortgage.
When is a hard money loan appropriate?
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There are numerous circumstances where a hard money loan is the best option for a client. Remember not all loans are appropriate and/or a fit for hard money. Below are just a few of the reasons borrowers may need a private loan as opposed to a bank or other traditional lender.
- Borrowers in need of a quick closing—Time Impaired
- Borrowers whose properties are not performing as they should – Property Impaired
- Borrowers that don’t have or don’t want to produce all the documents required for a conventional loan
- Borrowers that don’t want to pay for and wait for a traditional loan, for example appraisals, environmentals, etc… can cost thousands of dollars and take months
- Borrowers with impaired credit (Fairview Lending can lend to borrowers with any credit)
- Tax Liens/Judgements/unpaid utility bills, etc…:
- Partner Buyout
- Owner Occupied commercial properties that are unable to document enough income (they might right off a bunch of items so their P&L on an accrual basis looks much worse than on a cash basis)
- Time constrained borrowers
- Foreclosure avoidance
- Foreign Nationals
- Complex loans with multiple pieces of collateral
- Marijuana loans
- Loans that don’t fit traditional guidelines, i.e. needs a short term bridge loan to take advantage of an opportunity
- Need cash quickly for a business opportunity (i.e. buy materials, equipment, business cash flow, etc…)
- Real estate investors that have more than the allowed number of properties
5 tips for hard money borrowers and brokers
Unfortunately there are many unscrupulous players in the private lending/ hard money arena. I hear every day from borrowers and brokers who have lost substantial money and time due to a shady player in hard money. This could be due to upfront fees or other “due diligence fees” that other lenders use as profit centers. The following are five tips to ensure you protect yourself and your clients when looking for a non-conventional loan / Hard Money Loan.
1. Be wary of large upfront fees
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Any broker or lender who approaches you and states that you will be required to submit a large sum of money (>1/2% of the loan amount) for due diligence (many times these deals never close and the borrower is out thousands of dollars). At Fairview, we are big believer in no upfront fees. Since we underwrite in house, we don’t need money from the borrower upfront to provide a yes or no answer. We think all lenders should operate this way, but unfortunately many lenders make tons of money on “due diligence fees” as opposed to at Fairview, we only get paid when a deal actually closes
2. Individuals masquerading as lenders
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Many individuals claim they are direct lenders when in fact they are just brokering the deal to another party without disclosing this to the borrower. It is imperative to understand who the decision makers are in the lending process and whomever you are working with can provide an honest yes or no answer
3. Full disclosure
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It is imperative that the borrower disclose all information up front that could materially impact the transaction (tax liens, title issues, and time sensitive issues). Somewhere in the process the lender will discover the information anyway. It is much better to disclose this information up front so that all parties can take the appropriate steps to comprehend and resolve the issues to ensure that there is not an impact on the loan closing. This is a two way street and the borrower should also request that the lender discloses everything up front regarding their documents, etc.. so that there are no surprises on either end
4. Understand the process
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Many lenders/brokers do not fully explain the loan process including document requirements, site inspections, title, environmental, etc… To ensure no surprises, it is critical to understand the process and that the borrower and lender have reasonable expectations and communicate honestly.
5. Deal sounds too good to be true
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Unfortunately many lenders and brokers prey on individuals with less than perfect credit claiming that they can repair their credit overnight, get them a loan priced at two points below prime, etc… If the deal sounds too good to be true, trust your instinct and do not proceed with the transaction. A hard money loan is not a bank loan and as a result the terms (rate, length, etc..) are considerably different. A hard money lender cannot provide conventional lending terms (which is why a borrower needs a bank alternative)
The Fairview Advantage
Fairview is a direct hard money lender / private lender/ bridge lender. We are different than other lenders. When you call you will get a quick and honest yes or no without costing you or your clients a dime. Fairview has an A+ rating with the BBB. We actually lend our own funds and hold and service all our own loans and can provide loans as long as ten years (most other lenders can go out only 6 months or so). Fairview is recognized within the industry as the experts on non conventional loans. We do not broker loans and make all decisions in house. This enables us to close your residential or commercial transaction quickly without any drama or headache. Below are eight differentiators as to why Fairview is the leader in hard moneyv
1. Actual Lenders
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Unfortunately many in the market advertise as lenders only to discover that they are merely brokers (nothing wrong with brokers, just need disclosed). Being a true Lender, when you call Fairview you will speak directly to the decision makers.
2. Honest Answers with No Upfront fees or appraisals
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At Fairview, we underwrite and hold all of our loans. Since we underwrite everything in house we don’t need costly appraisals or other upfront fees. We will provide an honest yes or no without charging a dime to the borrowers or brokers. Fairview is one of the only lenders that is able to close a loan without getting any money from the borrower/broker prior to closing.
4. Creative Approach to lending
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Since we are lending our own funds, we have the flexibility to structure a loan to fit each unique situation. For example we can structure our loans as interest only or amortizing and terms from 1-15 years depending on the needs of the borrower
5. Market Expertise
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At Fairview we focus on our core markets and understand them inside and out and the uniqueness of each market and submarket. Since we underwrite in house we are out looking at properties and are intimate with the areas we lend in and as a result able to understand unique transactions along with their value proposition in the marketplace
3. No Loan Committee
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Since Fairview lends its own funds, you will get honest yes or no answers without the runaround. Our goal is to provide a yes or no within 1 business day.
6. Not credit score driven; asset driven
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Many lenders have minimum credit scores as opposed to Fairview. At Fairview we are focusing on the asset and base our loan decision on the asset. We understand that credit is not the only (or best) indicator of a borrower or project
7. Efficient
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Start to finish we underwrite, close, fund, and service all our own loans. Since we control the process start to finish we can ensure and efficient process
8. Recognized leader in hard money lending
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Fairview has been recognized by its peers as a A Hot 100 Mortgage Professional and maintains an A+ rating with the BBB. Fairview has also been featured in various publications including: The Denver Post, The Mortgage Press, The Niche Report, the Scotsman’s Mortgage Guide (trade publication for mortgage professionals, Colorado Business Magazine, Mortgage Professional America. Fairview is the recognized leader in hard money lending/bridge lending/ private lending throughout the country.
Learn More about Hard Money Loans
Fairview is the leader in hard money lending and has been featured in The Denver Post, The Mortgage Press, The Niche Report, the Scotsman’s Mortgage Guide (trade publication for mortgage professionals, Colorado Business Magazine, Mortgage Professional America, and was named A Hot 100 Mortgage Professional by its peers. At Fairview, we believe educating the borrower and broker is paramount which is why we have created hundreds of resources that have been published in various national publications. Below are just a few:
Resources for learning about Hard Money Lenders & Non-Conventional / Private Money/ Bridge Loans
Podcast: Play in new window | Download
Fairview is the leader in hard money lending and has been featured in The Denver Post, The Mortgage Press, The Niche Report, the Scotsman’s Mortgage Guide (trade publication for mortgage professionals, Colorado Business Magazine, Mortgage Professional America, and was named A Hot 100 Mortgage Professional by its peers. At Fairview, we believe educating the borrower and broker is paramount which is why we have created hundreds of resources that have been published in various national publications. Below are just a few:
- Key tips prior to utilizing a hard money loan
- What is private/no-doc lending vs. hard money lending
- How are Hard Money loans underwritten
- What is Fairview Lending’s loan process
- Can I broker a loan to Fairview Lending
- I have never done a commercial loan, how do I switch from residential lending to commercial lending