The 5 Most Common Questions About Hard Money Loans

[Corey Dutton]

For those who have never obtained a hard money loan, there are typically a lot of questions. Here are some of the most commons questions and answers about private and hard money loans:

1. What exactly IS a hard money and or private money loan? – A hard money or private money loan is a non-bank loan. Whether the source of the loan is a private individual, a fund, or an insurance company, a hard money or private money loan is any loan that comes from a non-bank source. Interest rates charged are typically higher than a bank loan, and loan terms are much shorter. One can expect to pay between 7% to 18% interest, and the loan term offered is between 90 days to 2 years.
2. Do some hard money lenders offer longer loan terms such as a 15, 20, or 30 year mortgage? -Typically a hard money / private money lender will provide a loan for a term of 90 days up to 5 years. Most hard money loans are made on a short-term basis. It is very rare to find a hard money or private money lender that will offer a loan term for longer than 5 years, however there are some exceptions.
3. Will a hard money lender give me 100% of the purchase price like the old days of hard money lending? - Before 2007, it was common to find hard money loans that would give you 100% of the purchase price of a piece of real estate. Since the real estate crash however, most hard money lenders will only give you a loan for a percentage of the purchase price. And these days, more emphasis is placed on the borrower’s ability to bring in a significant down payment. With most hard money loans, be prepared to bring in between 10% to as high as 50% on some real estate.
4. What if I have a bankruptcy, short sale, or a foreclosure on my credit? Can I still get a hard money loan? - Although there are some hard money lenders that will not make a loan to you under these credit-based circumstances, there are many that are still willing to make you a loan even if you have these types of marks on your credit report.
5. What kind of collateral can be used for a hard money loan? - Although most hard money lenders only use real property as collateral (real estate), there are some hard money lenders who will use jewelry, recreational vehicles, and other types of collateral to make a loan. However, it is difficult to find hard money and private money lenders that will accept such collateral. Most hard money lenders want to use real estate as the collateral for the loan.

What are some other common questions you see regarding hard money loans? Or, what would you add to the answers provided to the questions in this post? Please contribute to the discussion.

[Ann Bellamy]

[/quote=Bill Gulley]In other words, those are the excuses for greed in most cases.
I'd bet too that many hard money lenders, don't have any underwriting experience but origination and processing experience. That isn't a bad thing, it's just that the higher rates and fees usually make up for the lack of a sharper cut on the deal. They also have limited funds and may have interest ticking on them for available funds, so that's another reason for the higher costs, the borrower may be paying for money they don't use. And, if there are investors they require a return and the broker/originator guy needs to feed his family too, so the costs go up.

Saying that a borrower with a credit score of 6 is a great risk may not be true at all with a 65% LTV loan, depends on the collateral, IMO. Many are simply asset based loans. I have made many loans successfully to people who had low or poor credit at 10%, wheree the credit issues were due to medical bills and bankruptcy, in fact someone who took bankruptcy is a better risk than one who is thin on ratios since they can't take bankruptcy again for 7 years.

You all need to understand too that most of my lending has been done under usury laws, so higher rates and points can be illegal on any residential loan. I made a ton without charging such high fees, so I attribute much of it to greed rather than prudent lending.....but if it's legal and someone is willing to pay it, by all means......

But I'd ask where the door was..... :)

Bill Gulley, it's difficult to not take this as an attack, but I'm going to assume you aren't automatically calling me greedy.

It's evident that you look at all hard money lending from the perspective of residential lending, based on credit scores, and consider hard money loans to be predatory.

However, in my experience and within my network, all such loans are

1. made to companies, not to people
2. are commercial loans
3. are asset based
4. are not related in any way to medical bills, credit scores, etc
5. are not made to "desparate people" but to businesses

It appears that you see everything from the perspective of residential lending, similar to the concept of "to the hammer, every problem looks like a nail" or whatever the heck that expression is.

So I'll simply assume that your comments are not intended as an attack, and when you ask where the door is, tell you to prevent posterior trauma upon departure. With all due respect, of course.