Hard money is fast becoming the avenue of choice for many real estate investors when looking for transactional funding. The red tape that the banks and other lending institutions put up when trying to qualify for a loan does not exist in the hard money world.
Hard money is a catch all phrase. Also referred to as private money, private hard money, gap financing, bridge financing and other terms, the essentials remain the same. These are loans that are being funded by an individual, or individuals, rather than by a large banking institution.
The up side of this basic fact about hard money is that the decision makers are the people lending the money themselves. There are no black and white guidelines or restrictions that every transaction must fall within. Instead, if the deal makes sense and the private money investor feels comfortable with the borrower and (more importantly) the collateral, a loan can typically be made.
In exchange for these loose guidelines, private investors command a higher interest rate than the banks typically will charge. Double digit rates are the norm, with typical hard money transactions falling out somewhere between 10% and 14%. The more conservative the deal is, the better your chances are of obtaining better terms. The more aggressive a deal is, the more you should expect to pay for the money.
In addition to interest rates, you can also expect the fees to be higher. Average cost on a hard money loan these days can range from 3 points on up. Seven and eight point deals are not out of the ordinary, especially for short term bridge financing that has become popular for “fix and flip” properties. These rehab loans are more aggressive, and hence more expensive.
Hard money these days also tends to shy away from owner occupied properties, or loans made for consumer purposes. With the recent melt down in the financial world, many new regulations have been placed on lending. Due to these regulations, many hard money lenders simply choose not to make consumer loans.
When looking for hard money, it is important to deal with a professional who specializes in this type of financing. Getting hard money financing is all about relationships, the more aggressive you need to be, the more important it is to have a professional with quality relationships working with you. For more information, or to talk with a specialist, please visit hard money loans.