Coming To Terms With Private Hard Money Lenders

Posted on: October 22, 2011

Categories: Other Articles

Author: lbuen

Private Hard Money Lenders – Quick and Flexible Source of Funding

Many real estate investors turn to private hard money lenders because they can provide quick and short term financing, require less paperwork and less stringent qualifications. Oftentimes, these money men lend to individuals who do not qualify for a traditional loan because of bad credit rating and other similar circumstances. This exposes them to higher risks of default. To offset this, they have laid their own terms when lending money. Of course, these terms vary from one lender to another, but nonetheless, they share more or less the same lending yardstick. Before using private hard money, let us take a look at the answers to questions pertaining to the terms of private hard money loan to find out if they fit your needs.

300px Quentin Massys 001 Coming To Terms With Private Hard Money Lenders

Private Hard Money Lenders Image via Wikipedia

1. How Much Can You Borrow From Private Hard Money Lenders?

This can be answered using the Loan-to-Value or LTV ratio. Usually, you can borrow by as much as 70 percent of the After-Repair Value (ARV), meaning, you can borrow 70 percent of the value of the property in its repaired state. For example, let’s say, you come across a house valued at $40,000 in its current condition, requiring $15,000 in renovations. After the rehab,

its value is expected to rise to $90,000. So when you take out a loan fr

om one of the private hard money lenders, you can borrow as much as $63,000. This amount is sufficient to finance the cost of the property and the restoration.

2. How Much Does Private Hard Money Cost?

These costs are represented by interest rates and upfront points. (You may also check out our post specifically for this topic.)

Interest Rates. The interest rates for private hard money loans can range between 12 and 20 percent per year. These are obviously higher than what you can get from traditional banks since they take in risky loans that traditional ones decline.

Points. Naturally, these figures are also higher for private hard money lenders than traditional banks and lending institutions. Since these non-conventional financiers readily embrace the greater risks, they exact higher returns. These fees make up for the time and resources of the private money lending institution, and for the returns of its investors.

A lot of real estate investors do not mind these higher costs as long as they get funding fast so that they can quickly keep up with great real estate opportunities that come their way.

3. For How Long Can The Private Hard Money Loan Last?

Real estate investors often use private hard money loans as quick source of short-term financing. Once they acquire the property, they refinance to get friendlier terms from traditional lenders. The loan period can last between six months and several years. Besides the loan period, also find out from your private hard money lender how soon you can get access to financing as this makes all the difference to help you make quick decisions and seize opportunities in good time.

4. What Are Other Fees and Things To Watch Out For?

One thing you should make sure is to pay off the loan as soon as you can to save on interest. However, be careful and first find out if the private hard money lender you are dealing with charges prepayment penalties. That is, you pay them fees for terminating the loan earlier than the stipulated loan period by fully paying off. These amounts can make a dent on your deal and seriously slash your returns. So better find out first if paying early can do more harm than good.

5. What Paperwork Will Private Hard Money Lenders Require?

Good old fashioned private hard money lenders bank on the viability of the deal and the property as collateral. That’s why all they do is take a look at the property rather than the financial standing of the borrower. However, these days, perhaps due to the economic landscape, there are private hard money lenders who would ask you to accomplish a credit application which may require W-2’s, tax returns, bank statements, and your latest pay stubs. This is to cushion them from more risks.

While private hard money lenders provide quick and virtually hassle-free loans, it is vital for borrowers to first familiarize the terms that their particular lender have.

 Coming To Terms With Private Hard Money Lenders
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