Some Basic Hard Money Lenders Info February 5, 2012
Posted by janey in : general finance , trackbackAsset dependent finance is what hard money lenders are generally explained to be involved with. The asset associated with the finance would be the residence that the investor is borrowing against. These types of financial loan providers work with an LTV (financial loan to value) ratio that is a lot below what a standard bank would likely offer finance for.
The standard LTV for hard money is right around sixty five to seventy percent. So if a customer wanted to purchase a property that cost one hundred thousand dollars a hard money lender would grant a financial loan for approximately sixty five thousand to seventy thousand dollars. The remaining amount of the cost of the property will have to funded with a down payment from the customer.
Conventional banks actually used to have down payment requirements similar to these modern hard money requirements. Throughout the earlier part of the century, at least for personal home buying, people would have to put down as much as fifty percent of the value of their own homes to get a financial loan. Market forces had more to perform with the interest rate back then and so they were a bit higher and borrowing consequently was not as cheap as it is today. But this also encouraged more saving that of course is necessary to the growth of an economy.
Short term financing is what hard money lenders perform most of the time. From a few months to maybe three years is a pretty typical financial loan duration. The interest rates are significantly higher than what banks get. The higher rates are to compensate the lender for the increased risk he or she is taking on.
The typical customer who goes to a hard money lender may be an investor that is buying a risky property in the market. So this is why hard money lenders get higher rates of interest so they don’t lose money if the customer cannot pay back the financial loan. Of course the higher down payment is another way to insure against loss. It helps to ensure that the customer has good incentive to pay the financial loan if he is capable.
From twelve to eighteen percent or more is the going rate of interest for hard money. Obviously this is a fair bit higher than what banks charge. Both of these rates could of course go higher in the near future as monetary inflation by the Federal Reserve increases and the money starts to lose more value more quickly.
Real estate investors often use hard money lenders because of how fast they can originate loans for their own investments. A lot of times an investor will find a deal that has to be pounced on quickly. As a bank might take thirty days or even more to fund a financial loan, this is not a viable option. Less than a week is how fast that sometimes a hard money lender can grant the financial loan.
Once the financial loan is approved by these lenders many of them guarantee funding by a certain date. This gives borrowers a certain element of security in knowing that the money for a purchase is really going to be there when they need it.
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