Finance Articles

Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.

Hard money lenders are experienced investors and require a good return on their investment. This often causes hard money loans to become a last resort for people investing in real estate. The interest rates can be quite high, making hard money loans an expensive option for funding your real estate deals.

Hard money lenders are third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding alternative.

Then, why use hard money loans?Well, hard money loans are normally around 65 to 70% of the ARV (after repair value) of the property. This is very important, as now you can get finance for all of the purchase price plus any rehab costs if your ARV is sufficiently higher - in other words, you can get into the deal with nothing down!

If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.

Hard money lenders are found in various places. Your local newspaper probably provides a "money to lend" classified category. Check there first. There is also probably a local real estate investing association. Local hard money lenders solicit new business at these meetings. Finally, run an internet search for "hard money lenders" or "hard money loans." You are sure to find hits.

Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Hard money loans will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. Third-party lender who charge interest rates higher than the prevalent market rates for lending is called an hard money lender. Another benefit of hard money lending is that instead of lending based on your creditworthiness or character, money lenders will lend based on the security of the loan.