Finding ‘Hard Money’ Lenders Is Easier Than You Think
Collateral For A Hard Money Loan Is Only The Property
Hard money loans rely only on the value of the real estate property for collateral. The credit history of the borrower is not important. Usually, the limit for a hard money loan is a 60% loan-to-value. The hard money loan must be in the first position, as a first mortgage lien on the property, in the case of a default on the loan.
If the loan amount needed is only 60% of the property value, finding a hard money lender is easy. Just conduct a search on the Internet for a hard money lender in the area of the property.
Please note that the sale amount for a property is the value so it is not possible to use a higher appraisal for a higher hard money loan and then purchase a property for a lower value than the appraisal.
Hard Money Lenders Want To Make Loans
Hard money lenders want to lend money to deals that are qualified. They typically charge higher interest rates plus points (a percentage of the loan amount paid at the close of escrow). They almost always have more money available to lend than qualified deals. The qualified deals are harder to find than the money!
Advance Fees Are Usually A Bad Sign
One word of warning. NEVER, ever, under any circumstances, pay an advance fee for a hard money loan “commitment.” Any fees for the lender come out of the escrow closing when the loan funds the deal and not one second before.
No matter how convincing a lender is, about requiring an advance fee, do not pay it. If you cannot find a real hard money lender, who does not ask for an advance fee, your deal does not qualify for this type of loan.
Joint Venture With The Land Owner
If the land is owned free and clear, a joint venture can be arranged to borrow 60% of the land value for a development project and then a hard money loan can be used on a short-term basis while the land is improved and permitted for development. Then, a property can be reappraised at a higher valuation after improvement and permits are in place.
New financing can pay off the hard money lender. For example, a construction loan that converts into permanent financing can retire the initial hard money loan when the project hits certain milestones.
Advertise For Investors
Under the JOBS Act of 2012 and subsequent revisions, the regulations allow general advertisements for investors. Many real estate developers are now using crowdfunding platforms to fund their deals, as another way to raise capital. Using this method, investor funds can be pooled from smaller investors to provide working capital that can be used along with hard money loans to do real estate deals.
You could surmise that finding and/or creating the deals that are hard-money worthy is the more difficult task than finding the hard money loan funds for a qualified project. Before making a rush decision, consider discussing your options with a mortgage lender. This trusted professional can offer information about a variety of financing options.