Hard money lenders are people who make loans using private capital to purchase real estate. These individuals have one or more investors and borrowers. The entity issuing the loan must charge the borrower enough to cover its costs and give its investors a return. The lender must retain enough to cover its overhead and desired profit margin. While the process is more complex, hard money lending is a viable option for many investors. This article will provide you with the basics of this unique type of lending.
One of the main benefits of hard money lending is that you can make interest-only payments until your loan is paid off in full. These loans are more flexible than traditional bank loans and are best suited for those who want a short-term loan with a guaranteed exit strategy. While the interest rate is higher than a repayment loan, an interest-only loan will help you with your cash flow. Your monthly payments will be lower.
One of the advantages of hard money lending is that it is not governed by the same strict rules as traditional banks. A hard money lender may have different requirements than a bank, but a good hard money lender will be able to approve your loan application regardless of whether it’s a private or public institution. Most hard money lenders are not banks or other financial institutions, and the amount they can lend varies widely.
Hard money lenders do not have the strict underwriting rules that traditional banks adhere to, so they can set their own terms. The terms of hard money loans are often negotiable. You may be able to negotiate a lower interest rate or a longer loan term. You should always consult a tax and financial advisor before applying for any type of hard money loan. You should be aware of the potential risks associated with these loans, so you should choose wisely.
A hard money lender will generally charge you high-interest rates because they are concerned with your ability to repay the loan. Unlike traditional lenders, they will assess the risk of a borrower’s ability to repay a loan in a timely manner. For this reason, hard money lenders will typically do a thorough background check on their potential clients. If they feel they can trust them, they will be more likely to work with them.
In addition to hard money lenders, you can also find a balance sheet lender who offers a loan to individuals. This type of lender holds the loan until it matures and has no interest in it. In contrast, a balance sheet lender is paid upfront and does not invest in the loan. These types of lenders have a more limited range of options. The main difference between the two is that they are both balance sheet lenders and brokers.