Hard Money Loan
A hard money loan is a particular breed of asset-based financing common with investors in which funds are secured by either commercial or residential real property. Almost always companies or private investor parties back these loans. Ambitious borrowers are wise to shop around when looking for a lender. Diditan Financial is a company that offers hard money loans through our flexible network of investors. We pride ourselves on only collaborating with and partnering with investors who grant the best rates on hard money loans to deserving clients. Hard money loans can pose various levels of complexity. Here are some common questions our clients ask:
Who Needs a Hard Money Loan?
Hard Money loans are used primarily by investors and house flippers to fund investment deals because they can borrow up to 100% of the purchase price and get the money in less than three days. Some investors will even use a hard money loan to get a property, do some quick upgrades to raise its value, sell it off while making a profit, and get a new loan from a traditional bank to pay off the hard money lender.
How Does a Hard Money Loan Work?
When an investor needs quick cash to fund a loan on an investment, a hard money lender (HML) will give them a loan that is typically for three or 12 months, though some HMLs can grant a longer loan period depending on the borrower’s project and circumstances. The investor seeking the loan generally gets the final documents from the HML within 72 hours and can therefore fund quickly. Commercial properties and adequately collateralized loans on houses and other residential properties are projects that hard money lenders will fund.
What are the Rates on a Hard Money Loan?
The rates on hard money loans can vary, as it depends on the lender. For the most part interest rates will range from 10% to 20% on interest only. Also, your credit score and experience can dictate rates. You can expect to pay fees and closing costs, and HMLs will often charge investors anywhere from 2-10 points to use their funding. Keep in mind that one point is equivalent to one percent of the mortgage amount, so when choosing a hard money lender these are things to factor in along with interest rate concerns.
Do I Have to put Money Down for a Hard Money Loan?
Unless you have lots of experience and great credit, in most cases you will be required to put some money down because the majority of lender’s want faith that you will have the means to complete the project. At or before closing, you should also expect to pay origination costs and closing. Is these closing costs are something you simply can’t afford to pay on, than a hard money loan is not a good option for you. Diditan Financial helps borrowers and investors find the ideal loans to complete their projects–give us a call and our team will work with you to find the best solution. In some cases we can even defer interest to the end of the loan, though most have interest that requires monthly payments.
How Do Hard Money Loans Compare to Traditional Loans?
Have you heard the expression, “comparing apples to oranges”? Well, comparing a traditional loan to a hard money loan is doing the same thing, Whereas conventional financing applies to long-term repayment scenarios, a hard money loan is a quick solution to resolve time-sensitive issues, like completing a house flip. Securing a property in a short period of time, especially with foreclosures, is a common situation where the investor may seek a hard money loan, whereas a family of four wanting a 30-year fixed mortgage would pursue a traditional loan.