Grade
“D” - Hard Money Loans or Bridge Loans
Hard money, private money, private lending, bridge loans,
and equity loans typically are variations of the same
loan product. Hard money does not mean the funds are
hard to obtain. Often our hard money loans are the easiest
to obtain. Generally speaking, the industry defines
“hard money” as unconventional asset based lending in
which the collateral is real estate.
A hard money loan is usually
a borrower’s “loan of last resort,” meaning that all
of the borrower’s other options have been exhausted
and due to some significant need or a problem, the
only solution is a hard money loan. The typical reasons
for needing a hard money loan would be: fast funding
need, rough property type, low credit score, foreclosure
bailout, bad property location, etc. The following
are the important issues concerning Hard Money loans
(HMLs):
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HMLs are short-term loans
that get a borrower from one point to another.
HMLs should not be considered long-term.
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HMLs might be for the
purchase of a property, refinancing, foreclosure
avoidance, land development, rehab, etc. |
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The maximum Loan-to-Value
is between 35% and 60%. |
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Interest rates are between
10 and 18%, with interest only or amortized payments
and a balloon in 1 to 3 years. |
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The points charged typically
range from 5 to 10, with additional costs for
an appraisal, title, and legal costs. |
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The key to closing an
HML is the PROPERTY. If the property is strong
and other parameters fit, the loan should close. |
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The benefits of an HML
include: closing speed, less paperwork, sellers
can hold back seconds, subordinate liens are allowed
to remain on title, flexible LTVs, cross collateralization
of other real estate permitted, high risk properties
accepted, bad credit usually not a problem, recent
bankruptcies or foreclosures are ok, these are
short term loans usually with no prepayment penalty,
etc. |
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In order for
an HML to close, the borrower must prove how he
is going to make the payments and pay off the
mortgage. |
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