Hard Money / Private Money: The Basics
With the Mortgage Industry in constant change lately many of my clients are turning towards Hard Money type loans. These Loans also go by the term Hard Equity and Private Money. Being a
Mortgage Broker in South Florida (
Palm Beach Gardens) I have over the years and continue to work with several of these type of companies as well as individuals.
Lately I have received many inquires from perspective clients asking me questions about these type of loans. This is the reason for the post just to give the basics of who gives them and what to expect when looking for these type of loans.
Common Myths
These Loans come from people with connections
65% Loan-to-Value
These Companies are waiting at the Court House for you to be 1 day late so they can Take your Home.
These Type of Loans are only for People with bad Credit
You Can use your Own Appraisal
Only for Residential Property
These Loans are only for Foreclosure Bailouts
The Reality of the Myths
These type of loans maybe back in the day might have come from people with questionable character but the fact is today these type of loans are coming from: Banks, Hedge Funds, Private Investors, Investment Firms as well as individuals. They are looking for a high return on their investment which this type of loan does provide for their investors
Many people are under the impression that 65% is standard in the industry. In this market with declining values people must realize that is UP TO 65%. (in some case if the investor likes the file they might go higher). When property values where going crazy 65% was not a problem but now more then ever the investors are really looking at the entire file.
Investors wanting your property is simply not true.(No matter what your Loan to Value is) Everyone in the industry not just sub-prime has a glut of property they own already and know one is looking to add to their portfolio. Now more then ever these Lenders/ Investors are really looking at the ability to repay the loan.
A common myth is these type of loans are only for people with bad credit. This is simply not true. Right now I am working with clients on both purchases and refinance's of people with GOOD Credit but because of the easier underwriting they are taking advantage of these type of loans.
Unfortunately, many Brokers and Loan Officers in todays Lending industry are not up to date on all programs and will order an appraisal before knowing what type of loan the person qualifies for. The majority of these Type of Lenders/Investors will ONLY USE their own Appraisers on your property so be prepared for another appraisal.
Residential Properties are not the only use for Hard Money. These Investors (which really what they are) are always looking for ways to increase profit and will finance both residential as well as commercial properties. Some of my investors that I have used will have several Million to lend just on one property.
Foreclosure Bailouts are just one of many uses for these type of Loans. Many people can turn towards these for purchases and refinance as well.
What Can You Expect From a Hard Money Loan
First these Loans don't come free be Prepared to Pay Points (Yes that is Plural)
Each Investor has a different type of loan 1, 2, 5
Write a Letter of Explanation why you are looking for this type of loan (this will go a long way)
For Commercial Loans and some Residential loans have an updated Resume ready. (YES you did read that correctly)
A Pre Pay Penalty is Standard on these Loans (very few do not offer these products without one)
Advice for Seeking a Hard Money Lender
Please understand I just gave you some basics on Hard Money lending each investor is different. When seeking these type of Lenders make sure your Loan Officer and Mortgage Broker really know and understand how these products work. Many Loan Officers and Mortgage Brokers really enjoy these products only because they close quickly and they can get paid fast.
Before signing any closing documents MAKE SURE YOU READ EVERYTHING AND UNDERSTAND IT. In addition, DO NOT be pushed into signing anything until you feel comfortable with the Mortgage. I know sometimes people get desperate and are willing to sign just about anything. However, any Mortgage Professional worth their weight in gold will deal with several Investors not just one Hard Money person. If your Mortgage Professional informs you that they only have one of these type of people my suggestion is to run! Find someone who knows and understands how these products work and also has several investors that they use.
In closing, make sure you do not sign a section 32 loan (high Cost). Any True Mortgage Professional or Lender will never touch one of these type of loans.
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