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Hard money loans

According to experts when you need funding urgently but you cant wait for weeks to search lenders for traditional loans, you can opt for Hard Money Loans.

In simple terms a hard money loan is a type of borrowing in which a borrower receives loans based on the value of a specific parcel of commercial real estate.

In an ideal scenario this means a loan where the lender approves the loan request by deciding upon the value and equity in the assets, without spending considerable time traditional lenders spend on documentation and verification of borrower for the same amount of loan. Theoretically speaking the most important issue in case of Hard Money Loans is that this loan involves much higher interest rate than other categories of loans.

Key Features of Hard Money Loan

While there is no denying that in traditional loans a lender spends considerable amount of money and time on verifying borrowers details like credentials, his income, source of income, tax history, credit history etc. On the other hand in case of hard money loan, lenders avoid the above procedure because in Hard Money Loans, the amount is based upon the value of the real assets or collateral anchoring the loan, therefore, hard money loan is provided at the least possible time. Point to be noted in this regard is that hard money loans are also those loans that need to fund quickly and the borrower cannot afford to wait for weeks or months for a traditional lender.

Hard Money Loans: Key Factors

1 Fastest Processing

2 In addition not linked with borrowers credit record, income level, source etc.

3 Whats more can be borrowed even in case of legal & operation issues

4 TERMS: In an ideal scenario flexible loan terms between 6 months and 20 yrs

5 LOAN SIZE: 500,000 to 75 million

6 COLLATERAL: More often than not real estate and other fixed or liquid assets

7 Furthermore there is special Situation Financing Structure offered for all type of commercial or residential real estate development that cannot be funded by the more traditional lender

Loan Structure

It is worth mentioning in this regard that a Hard Money Loans is provided when the related

real estate is offered as collateral. The amount of loan is based on the quick-sale value of the property against which the loan is made. Generally speaking, most lenders fund in the 1st-lien position, meaning that in the event of a default, they are the first creditor to receive remuneration.

On the other side of the coin the loan amount in case of hard money loan is decided as the percentage of the quick-sale value of the subjected property. Fact remained that this percentage is called the Loan-to-Value or LTV ratio and typically fluctuates between 60-70% of the value of the property. If experts are to be believed, value, in this case is determined as 'today's purchase price' Therefore it is worthwhile remembering that based on the above, a hard money lender, may structure a loan as follows:

68% Hard Money Loan

18% Borrower equity (cash or additional collateralized real estate)

14% Seller carry back loan or other subordinated (mezzanine) loan

Eligibility: The question now arises: Are you eligible for Hard Money Loan Theoretically speaking it has been seen that hard money loan is ideal for borrowers who are unable to borrow from traditional source. As a matter of fact such borrowers are often surrounded by legal & operational issues. Always remember that in such cases, hard money loan providers solve the problems and get the property suitable for borrowing from traditional lenders. Though it is worth pointing that the type of property to be considered as collateral depends upon the lender, normally the following income producing and non-income producing properties are considered suitable for collateral:

Income producing Properties:


condo/co-op conversions

retail/shopping/strip centers

mixed use properties

industrial, office buildings


medical, mobile home parks and restaurants

Non-income producing properties:

land acquisition

development and construction

bank workouts, foreclosures and bankruptcies.

LOAN Amount and Interest Rate

Point to be noted in this regard is that loan size varies from lender to lender but the normal range is 500,000 to 75 million on different categories of properties. On the other side of the coin repayment duration is normally in between 6 months to 20 years. In addition interest rate is based on various factors such as loan amount, repayment duration, risks involved etc but usually remains in the range of 10%-13% with a low fees starting at 2%.

In an ideal scenario at time, there are few lenders who provide upto 100% loan but very rarely. As a matter of fact typically for a hard money residential loan, borrowers 15% equity in land or liquid assets is taken as sufficient collateral. Similarly, it is worthwhile remembering that in case of commercial property 25% equity is usually taken as sufficient security.

Loan Processing

There is no denying that processing documents for Hard Money Loans is easier and fast compared to documentation for other categories of loans. Believe it or not one can fill out the online application form from the website of different lenders or can phone these lenders representatives who provide fast service on call.

In simple terms a hard money commercial loan is an advance for a commercial venture for which conventional funding is not available. In other words, one can safely say that it is money that is difficult to get elsewhere. According to experts the purposes for which such loans can be obtained include investments, property acquisitions, construction, business and industry, refinancing and a lot of others.

More often than not suitable collateral is required for obtaining a Hard Money Loans commercial loan. In addition the third party appraisal on the collateral may not be necessary.

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