What is a Hard Money Mortgage Lender
What is hard money
Hard money loan refers to a loan of money that is backed by physical assets, usually a piece of real estate making the loan a hard money mortgage loan. Lenders of hard money require a low loan to value (LTV) on the loan. A hard money lender only examines the value of the property that is being offered as collaterial for the loan. They want to know if the property is foreclosed on that they will still make a profit.
The best hard money mortgage lenders are going to be dependent on your physical location and someone that you feel comfortable working with. In many ways a hard money mortgage loan is similiar to a bridge loan, it's usually shorter term and costs the borrower more money in fees, points and interest than a traditional loan. Unlike a bridge loan, a hard money loan can often involve a distressed financial situation. A homeowner behind on their existing mortgage, or even in foreclosure proceedings may look at a hard money loan.
Hard money mortgages are not regulated by states or federal laws. Usury laws in some states may be applied to them if the interest rate become too high. With no oversigth from an indepentent party it can be very important to find a hard money lender that you trust.
A lot of times, hard money is used by a real estate investor interested in purchasing a property that may need fixed up, and as such, wont qualify for a tranditional mortgage. After the property is restored to a better condition and traditional financing can be obtained the property will be refinanced to get the better priced financing. Commercial real estate investment often uses hard money mortgage loans because they can be obtained much quicker than traditional loans.
How much is a hard money loan going to cost?
The upfront costs associated with a hard money loan is going to be the points required to obtain the loan. Traditional mortgages usually have one to three points, a hard money mortgages can have up to five or six p0ints.
The interest rate on a hard money loan is not based on the existing bank rate. The interest rate on one of these loans will be most likely be in the teens, and if it's defaulted on the rate will go even higher.
Be wary of any lender that requires large upfront fees. This can be the way some so called 'hard money lenders' make their money, requiring non-refundable upfront inspection fees and then they never give the loan. Another shady practice that some hard money lenders may participate in is brokering the loans to other lenders. Going through each broker raises the cost to the original borrower.
If you decide to look for a hard money mortgage loan be sure to look for the best hard money mortgage lender for you. And be sure to check references of any lender that you decide to work with. Do your own due diligince on the lender and check into some of the other properties that they may loaned money on.
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