What does hard money mean?

What does hard money mean?

Simply put, the term “hard money” means money that is loaned on a short-term basis and is secured by a hard asset – real estate.

The value of the property the real estate investor wishes to purchase with the loan dictates the amount the hard money lenders are willing. In most cases, the subject property is the one that will be fixed and flipped or rented out, but in some cases, hard money loans are given based on a different property or asset that the borrower wants to use as collateral to fund the flip.

Hard money lenders weight different criteria more heavily than traditional lenders such as banks and mortgage companies. Even though the borrower’s credit is still a factor, it may not be as important to hard money lenders as the value of the property, the borrower’s experience with successfully fixing and flipping other properties, and the ARV (After Repair Value) of the property. Hard money lenders may also be willing to take a lower down payment and include the costs for the repair of the property in the hard money loan.

What types of properties qualify for hard money loans?

While this is up to the discretion of the hard money lender, properties that qualify for hard money loans may include family residential homes, multi-family homes, commercial buildings, vacant land, and industrial facilities.

In most cases, hard money lenders will specialize in one or a few of these types of property loans so it is vital to connect only with those who are comfortable lending for the type of property you intend to purchase. There is no point in trying to convince a lender who specializes in commercial properties to lend money on your single-family house rehab project when there are many others who are eager to do your deal. In nearly all cases, though, a hard money lender will demand 1st-position lienholder status to minimize the risk of losing their money.

Is a hard money loan an option for your real estate deal?

Hard money loans aren’t the best bet for those with good credit, stable employment history, a healthy 20% down payment, plenty of time to get through the bank approval process, and a desired property that is already in good repair. In this case, a conventional bank loan will give a better interest rate. Hard money loans are a great Plan B if you or your deal don’t meet the strict requirements for bank funding. For some borrowers, especially fix and flip real estate investors, a higher interest rate is manageable because of the short duration of the loan and the high expected profit margin when the property is ultimately sold.

How do I find the right hard money lender for my real estate deal?

You already have! Create your LendVent Borrower’s Profile today to be connected with hard money lenders who are willing and eager to provide the funding you need. You will be matched with only those hard money and private money lenders who do the type of lending that fits your individual criteria for a fast transaction and terms you can live with.