FAQ
Q: Why do they call it “hard money”?
A: There are many explanations, but the most common answer is that the lending is based on “hard†assets as opposed to the borrower’s credit or income. We often refer to our loans as “private moneyâ€, because many of our lenders are private individuals.
Q: What is hard money used for?
A: Hard money is generally used by investors to purchase properties for rehabilitation and sale (flipping). Private money can also be used in some cases to start a business, or to perform improvements to existing real estate, making the property eligible for a conventional lender re-finance.
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Q: Why would anyone borrow hard money when banks charge lower interest and fewer fees?
A: There are many reasons why a borrower would choose to use private or hard money over less expensive institutional financing, but the following will address the most common benefits.
No Credit or Income Verification Our loans are based on the value of the property being purchased, not the purchase price. This allows investors to take advantage of time-sensitive property purchases such as foreclosures and bank-owned properties. We are also able to cross-collateralize the loan with other properties, so we are often able to lend over 100% of the purchase price.
Speed of funding This is the most common reason—banks typically take a minimum of 30 days to fund a residential loan, and 90-120 or more days to fund a construction or development loan. Private money, however, is typically funded within two weeks, and can be funded as quickly as 24 hours in certain cases.
Conventional Refinance Many residential lenders whom offer the best interest rates will not loan on properties requiring rehabilitation. Using private money, an investor can make the needed improvements to a property and refinance out of the private money loan into a lower-rate conventional loan. Our loans do not contain a pre-payment penalty, making our loans perfect for refinancing!
Commercial Refinance Another type of project suitable for private money is a property that either lacks cash flow to meet bank requirements or requires physical improvements. Banks will not typically fund a loan secured by a property that requires rehabilitation prior to its use, and thus the borrower will obtain a private money loan to purchase and rehab the property, and then pay off the private money loan with lower-rate conventional financing. Sometimes a borrower will purchase a commercial property that has no tenants. Banks will not loan on such properties but private money will provide a bridge loan to purchase the property and provide the borrower with time to lease up the property. Once the leases are in place and have been “seasoned†for at least 12 months, a commercial lender will generally refinance the private money loan with lower-rate institutional financing.
Vacant Land Purchases Banks are prohibited by law from making most types of raw land loans, so private money is practically the exclusive source of financing for raw land. Equity in the subject property or other properties owned by the borrower is another factor.
Q: Is there a pre-payment penalty?
A: No! We are one of the only in the industry to offer NO pre-payment penalty.
Q: What are the interest rates?
A: Private money rates generally range from 10 to 14%. The rate is determined by looking at a combination of factors: (a) LTV (loan to value) ratio, (b) condition/desirability of property, (c) actual cash-in or real equity contributed by borrower.
Q: What fees are involved?
A: We charge loan fees generally equal to 3 to 5% of the gross amount of the loan. This is considerably lower than the usual 10% seen in the private money industry. Escrow, Title Insurance and Hazard Insurance fees are also charged by third parties. There are no “hidden†or surprise last-minute fees.
Q: Can the fees be paid from the proceeds of the loan?
A: Yes, so long as there is enough equity in the project. Most often, all fees are paid from the loan proceeds.
Q: How quickly can a private money loan close?
A: Loans can close in as little as 3 days when presented with a complete loan package, but we typically take one to two weeks.
Q: Is an appraisal required?
A: We typically require an appraisal, but if there is not enough time to obtain an appraisal and there are good comparable sales information then we can waive the appraisal requirement.
