Hard money loans are primarily used by homebuyers or professional real estate investors to quickly secure the cash needed to buy a piece of property or fund new construction. That property can be a single-family residence, multi-family residence, commercial property, industrial property, or land. Lenders who specialize in hard money loans are private investors, or groups of investors, who typically specialize in working with one type of property over another.
Hard money loans are short term, typically just 12 months, although some may extend up to 5 years in length. In comparison, standard mortgage loans offered by traditional banks and credit unions have 15 to 30 years terms.
The amount of money borrowed is based on the value of a subject property—one that the borrower either currently owns or is in the process of buying. Unlike traditional loans, hard money loans do not require existing equity in the property or other collateral. Because of the increased risk to the lender, hard money loans take first lien position on the property, which means that they will be paid off first should the loan go into default or when the property is sold.
Payments made on the loan are interest-only; less likely is a payment consisting of interest plus a small amount of principal. The most significant feature in all hard money loans is that they include a balloon payment due at the end of the loan term.
Interest rates and points are higher than traditional bank loans because the risk of the borrower not being able to repay the loan at the end of the relatively short term is higher. Rates vary from state to state (some states do not permit hard money loans) and region to region. California has relatively low rates because there are many lenders competing for borrowers’ business. Interest rates average 10% – 15% with points at 2% – 4% of the loan.
Qualifying for a hard money loan is remarkably easy compared to a conventional loan. There are no loan documents to wade through—in fact; there is little paperwork at all. For anyone looking to secure a loan quickly, this time-saving feature is invaluable, like when a real estate investor finds an incredible deal on a property and wants to swoop in before other bidders do. If you find yourself in a similar situation, call AS-IS Loans to find out how we can help you beat the competition and win the property you’re after.
Hard money loans do not rely on good credit ratings, so bad credit or no credit history at all is not an impediment to securing such a loan. Similarly, if the borrower has a new job and cannot supply the income documentation required by banks, that is overlooked as well—as are short sales and foreclosures. The primary requirement in qualifying is the borrower’s ability to demonstrate that he has enough capital available to pay the monthly interest payments.
Finally, the borrower must submit a plan that lays out how the loan will be paid off at the end of the term. Common ways include:
- The subject property is
sold before the end of the term, bringing the borrower profits that allow him to pay off the loan
- The borrower secures a long-term, conventional mortgage loan—with longer terms and a lower rate—after the property is purchased, and uses some of that loan money to pay off the short-term loan and its looming balloon payment
Hard money loans are approved fast. It usually takes just one or two days for approval, although some can receive same-day approval. Funding is exceptionally quick—borrowers can expect to receive money in just one week or less. In contrast, traditional mortgage loans from banks or credit unions can take up to 30-45 days or more to fund.
Hard Money Loans With AS-IS
Hard money loans have been around for hundreds of years. In any civilization where money was lent without collateral, but expected to be paid back nonetheless—or else!—there were hard money lenders. Today, these loans have evolved into highly reputable, reasonable means of purchasing real estate on short notice.
AS-IS Loans has been in business for over 30 years, providing quick money to savvy investors nationwide. Contact us to find out which product best suits your needs—we have options for every investing scenario, including bridge loans, fix & flips, and rehab projects. AS-IS offers same day approval, 1-week funding, and competitive rates to help you meet your real estate investing goals.