If you don’t have the ability to borrow from a traditional bank or mortgage company for your next real estate investment – whether it’s a commercial or residential, a hard money lender could be a great financing option.
Sometimes called bridge loans, hard money loans are typically offered by other real estate investors or specialized lending companies that pool investors’ money to do more deals. The loan is typically secured by the value (usually the after repair value or ARV) of the property.
The value of the property you are borrowing against is what hard money lenders focus on, more than your ability to repay the loan. Keep in mind that this means they’re more likely to foreclose on a property quickly than a traditional lender. If it’s your only option, you can turn to a hard money lender because you can’t qualify for a bank loan or a mortgage due to lack of income, bad credit, or some other mitigating factor.
Hard money lending for real estate investing includes these characteristics:
• shorter loan durations (usually 6-12 months, sometimes longer)
• higher interest rates (usually twice the standard mortgage rates)
• lower loan to value ratios (LTVs)
• first lien position (if you default, they need to get paid first)
• closing points on loan are higher (typically 3-6 points vs. 1-3 points for a traditional loan)
Could a hard money loan be the right move for your next real estate investment? Find out with a great real estate investing education, starting with this free webinar!
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