What is Hard Money?

 A “Hard Money” loan is asset-based, meaning the loan is considered primarily on the value of the hard asset (usually real estate) collateralizing it.  This is in contrast to a traditional bank loan which relies more heavily on the borrower’s qualifications – their credit and income. Hard money loans fill a crucial niche in the real estate industry by allowing investors to secure the funds they need without all of the red-tape involved with a traditional mortgage.

 Hard money loans are known for:

  • Speed  (sometimes closing in as little as a week or two)
  • Ease of qualifying  (as long as the asset value is there and the borrower can make payments)
  • Little or no down payment required
  • A ready source of capital
  • Flexibility – the borrower usually works face to face with the lender

 All of this, of course, comes with a cost. Hard money loans usually have interest rates between 12% and 19% with 4 to 8 % (points) origination fees. Investors, however, are generally happy to pay these short-term rates as it allows them to complete transactions they could not fund in traditional ways.

 Advantages of Hard Money

  • An investor can borrow up to 100% of the funds needed for the asset they are purchasing and repairs if the value of the asset warrants it. A bank will usually only lend on the purchase price of the asset which can be much lower.
  • Keeping the cash in the investor’s pocket helps stretch their investment dollars and make bigger and/or additional deals.
  • An investor can buy distressed properties based on its expected value after repairs (ARV). A bank will not lend on distressed properties.
  • An investor can make deals in industries that banks would have no interest in.
  • Often, a hard-money lender has been in the investor’s shoes so he knows the challenges he faces.
The Investor’s Source LLC Hard Money Rates and Terms

Unlike many private money lenders, The Investor’s Source works with every borrower to structure a loan to meet their unique requirements. Thus, rates and terms might differ on each loan. A range for each is provided below.

Interest Rate – 12% - 15% depending on the location of the property and the term of the loan

Down Payment – 0 to 20% based on the appraised ARV of the property and your experience level

Origination Fee – 4 - 5 points (5 points for loans closing in less than 8 business days after application & docs received and/or the property located in a rural area or beyond Colorado Springs)

Loan-to-Value – 65% - 70% of the ARV

Term – Buy and Holds - 24 months and possible renewals (fees apply)

           Fix and Flips - 6 months with an automatic 3 month extension (fees apply)

 

 

 

 

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