Do you use the term "hard money" anymore?

Question

Question --> I've heard conflicting things regarding the use of the term "hard money".  Just curious... do you use this term, or prefer something else?  If the latter, what do you use?

Riaz Gillani · Answer

Ironic I came across this in the field bc I ask my colleagues this all the time :)

I've always thought the term was outdated. Reason being a HML got its name because it was thought of as something that is Hard to afford. Higher rates points on the front and sometimes back. The loans generally stay on the lender's balance sheet so there's less boxes that need to be checked. But, there's also a new breed of short term debt and that being bridge / residential transition loans. Interest rates in the 7 to 10's and generally no more than 2 points.

I therefore strayed away from the term when I first started out. We offered the "Uncle Vito" kind of short term debt that I just mentioned, but I didn't want people to think of us as that lender. We try to give more of an affordable, deal friendly, and institutional impression.

BUT, some people prefer the higher points and rates because they're pros. They'll be out of the loan in 2-3 months. Would rather send pictures of the Reno being done than having a construction loan manager inspect the quality of work etc.

So, I mention all of this to effectively answer saying yes: it is still a term we use. One I ALWAYS use when offering short term product. People need to hear it because they're told that's what they need when starting out with little capital. But, I differentiate between the institutional hard money and the true hard money. Both have their pros and cons. Depends on the appetite and makings of the borrower.

Cheers!

Beth Johnson · Answer

The American Association of Private Lenders is actually an association that used to be called National Hard Money Association or something like that. Basically, the entire industry is making a push to move from HML to a more socially acceptable taxonomy of private lenders, though that is a stretch since most of the "big dogs" are somehow tied to Wall St/institutional capital and have somewhat high doc underwriting by comparison to local hard money or truly individual private capital. Here's a recent article from the AAPL on the rationale behind the switch in terms - which seems to be more driven by political action rather than marketing since Capitol Hill seems to associate hard money with loan sharks of the past. I think the differentiation is less a name and more the source of capital - at least when it comes to investor perspective. How quickly and easily you can get funded often depends on WHO is actually funding your loan. If it's a national "private lender" who need to sell out tapes of loans on the secondary market to free up capital for re-deployment or has a levered warehouse line of credit against their pooled mortgage fund, then they will be bound by whatever the institutional buyer requires like a BPO or perhaps a full appraisal, certain asset classes, and credit and experience thresholds. Rates are lower but traditionally what was called a local hard money lender might be able to the loan much quicker because of the lack of credit or experience requirements and hyperlocal business model centered mostly around the actual asset itself and less other criteria. There is definitely a circumstance for using truly private capital, local hard money, national hard/private money, or a broker - just depends on the scenario, in my opinion The Demise of “Hard Money” in a Private Lending World | American Association of Private Lenders (aaplonline.com)

Austin Johnson · Answer

man, for a second I thought this post was going to tell us "hard money is offensive now, you're going to be cancelled if you use that term". i read this way wrong,haha.

Jack Mawer · Answer

Scott, people still use hard money as a term. You could also call it a fix/flip, or construction/bridge loan.

Scott Weigel · Answer

Thanks for the responses everybody. Very helpful.

Dave Skow · Answer

@Scott Weigel when talking to people in the  industry - yes ....when talking to  the  regular  consumer - no ..a term  more  political  correct like "alternative " loan programs   is better understood

Mark Gilpatrick · Answer

I still hear the team quite a bit.

Celine Crestin · Answer

Yes, it's called Hard Money or as others mentioned can sometimes be referred to as private lending.

Ned Carey · Answer

@Scott Weigel yes hard money is still a viable term. Many companies come out with new product and give it different name for marketing reasons.

@Riaz Gillani the term "Hard Money" comes from the fact the lender uses the hard asset more than your personal credit to make the loan. The advantage is often to simply be able to get the money vs not getting it. Also it tends to be a much faster approval time. The disadvantage is generally higher rates.

New National lenders have come into the market offering a bit of a hybrid product, Debt Service Coverage Ratio loans (DSCR) however they require much more underwriting and time than a hard money loan.

As you get into the details of any one lending program the lines can become a little blurred.

Do you use the term "hard money" anymore?

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