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Commercial Hard Money Loans – Debunking The Myths

While commercial hard money loans might sound as if they come out of a Mafia movie, there is nothing dangerous or especially risky about being granted one of the many commercial loans that are on offer by the different independent financial institutions.

What are Commercial Hard Money Loans?

The word ‘hard’ can be misleading for many people who are applying for this sort of financing. All that it means is that the loan is guaranteed by an asset or a piece of immovable property. The loan will be granted on the strength of the value of the asset in question. Many developers use these type of loans when they are attempting to develop a piece of land into a commercial property that has investment potential as well as the potential of future earnings that will more than cover the loan amount.

The value of these loans is that they are usually funded by private investors. It is worthwhile finding a company who is able to match up potential investors to loan applicants. They will ensure that the loan is completely legal as well as being secured by the property itself and not the personal assets of the owner. Most of the private investors in America today are likely to be private firms who consider that issuing commercial hard money loans is a way of doing business that guarantees them a substantial return on investment. These loans are not usually granted over an extended loan term.

This type of loan is not like a conventional mortgage that is repaid over 30 years. The term is usually between 1 and 5 years and the interest rates are much higher than a conventional loan. While the top end of the scale of interest rates can reach up to 15 % it is still a way of obtaining finance for an investment without having to wait for months or go through an extensive process of paperwork and credit checks.

It is always wise to remember that commercial hard money loans will not cover the full value of the property and it is unusual to find any commercial hard money lender that will over about 60% of the value of the property. If you are buying property then you will have to fund the difference from another source or be prepared to fund it yourself. Commercial hard money loans are granted based on a logical and achievable plan to pay the money back on time and most commercial hard money lenders will need to see a considerable amount of property related experience.

They will not be inclined to lend money to first time investors, unless the risk is very low. Commercial hard money loans are a solution to investment opportunities that many banks have refused due to the economy.

Hard Money Loans – Best Way to Fund Your REI Business

As a real estate investor, it is important to have someone who can back you up financially, especially if you are just starting out in the housing business. One way to obtain funds for your investing business is to approach banks, mortgage companies, and credit unions. But if you’re not qualified to obtain a loan from these lending institutions, don’t fret because there is still someone who’s still willing to help you.

When it comes to securing funds for real estate investing or REI, the loan provide by hard money lenders is the best. Known as a hard money loan or HML, it is one of the most common types of creative financing. Unlike in traditional financing, hard money lenders verify a loan’s eligibility according to the value of the property that serves as the collateral. If the property can attract a good deal, the lenders would likely approve the loan application.

Aside from this, acquiring HMLs has a lot of advantages compared to traditional loans. Listed below are some of them:

- Because HML lenders do not care about a borrower’s credit score, the loan approval time is shorter. You can obtain the funds you need in just a matter of days, not weeks or months.

- You don’t have to produce documents and other credentials, as well as deal with a processing team, which is a common procedure in banks and other conventional lending institutions.

- You can acquire a property without spending a single dollar since there are instances that lenders provide 100% financing on some deals.

- Some HMLs cover a property’s repair cost.

However, one of the downsides of acquiring hard money loans is that HMLs have higher interest rates and origination fees, which are used to process a loan application. But the good news is that interest rates nowadays are relatively lower than in recent years. Because of the stiff competition, many lenders are forced to reduce their rates to attract clients.

Meanwhile, one of the best ways to find hard money lenders is to ask your fellow real estate investors for referrals. Since most of them have experience in working with these lenders, they can give you good leads. Asking settlement attorneys and titles companies for recommendations is a good alternative, too, since they are the ones who prepare loan documents for these individuals.