Questions About Hard Money Lenders and Repayment

[Sonya B.]

Hi BP! I have a couple of SUPER NEWBIE questions about repaying a Hard Money Lender (I've never even had a regular mortgage for a personal residence). 

1. My assumption is that once you get the hard money loan and you have the property, in the interim while rehabbing and before selling the property, I would need to be making monthly payments to the Hard Money Lender until I was able to sell the property to an end buyer.

2. Don't people usually use Hard Money Lenders because they DO NOT have their own cash (or even private money) to fund the deal? So, for those who use Hard Money Lenders because they don't have their own money, where do they get the money from to make monthly payments back to the Hard Money Lender before they are able to sell the property?

Is this correct? If not, could someone please explain how the repayment would work? Thanks in advance.

[Jeff Rabinowitz]

Every lender has their own criteria and their terms will vary depending on the borrower's experience, capital contribution, credit, strength of the deal (how much equity is there), and other factors. Not all private loans require monthly payments. Some lenders may be comfortable funding the deal for a specific term that will allow the property to be rehabbed and sold before payments are required. It is possible to get a private loan without contributing any cash but those terms are not likely unless the borrower has a well established track record and the current deal is being purchased well below market value. The less experience you have, the more cash you will need to show or the stronger your deal will have to be to attract funding.

If you are applying for a loan that requires monthly payments you must budget for a loan large enough to allow you to complete the rehab and make the required payments. If you do not, the lender may foreclose on their loan and take possession of their (it was purchased with the lender's funds) property back.