Q: What is a Hard Money Loan?
A: Hard Money Loans (also called bridge loans, rehab loans and balloon mortgages) are short-term asset-based loans, generally with a higher interest rate, meant for a quick fix and flip scenario. They are geared towards investors who are having troubles getting funding from banks or other sources yet need money fast to turn an investment property. In some cases Hard Money Loans are good for people threatened by foreclosure and who need a little time to gain control over the management of their property. The after-repair value of the property being borrowed against is looked at the moreso than the borrower’s credit to determine if a hard money loan is the best choice.
Q: What is the difference between a Hard Money Loan and a Bridge Loan?
A: Although both loan types have similar criteria for qualification and similar interest rates, hard money loans are specifically focused on financially distressed situations where money is needed fast for a quick sale to avoid bankruptcy or foreclosure or to help real estate investors turn a property faster. Bridge Loans are more focused on the term of the loan ie; to secure a project before permitting has been sought or to carry a home buyer through the purchase of a new property while in the process of selling an old one.
Q: Is my credit score important?
A: Generally not. The loan is secured mostly on the value of the collateral property. However it is usually a good idea to have a credit score of at least 640.
Q: How much money can I get in a single loan?
A: Usually between 65-75% of the property value, however loans can be cross-collaterallized with other properties to reach 100% financing. Average loans are usually around $100k or so but larger loans may be considered.
Q: What types of properties qualify for loans?
A: A typical property would be a residential 1-4 unit dwelling that needs repairs or is in distressed condition. Other properties are considered however on a case-by-case basis.
Q: If Hard Money Loans are not given by banks, who are they given by?
A: Usually lenders are private investors who lend only in local areas.
Q: Do Hard Money Rates follow bank rates?
A: No. Hard Money rates are determined by the local real estate market.
Q: Who is best suited to receive a loan from Mike’s Hard Money?
A: Borrowing from a hard money lender is not for everyone, but it can be a great tool to get the job done fast when other lenders are uncooperative. It is always good to have alternative sources for funding, and a reputable lender with real estate experience is an ace up the sleeve for a distressed investor. Mike focuses on building investor-to-investor relationships in the communities of Fort Collins and Northern Colorado. Circumstances vary greatly, but generally speaking, you should be a new or experienced investor with a non-owner occupied property on the table having proven potential to turn a reasonable profit in a short period of time.
Q: A friend of mine told me that Hard Money lenders are the equivalent of loan sharks. Is that true? What should I look for in a lender?
A: You’d be surprised when you use the term “hard money” in conversation how many people automatically associate it with loan sharking. Perhaps it’s the sound of the word HARD that makes it sound like an undesirable last resort. But regardless of why this term was chosen, all lenders have be be licensed. Anytime you deal with a lender, ask for references and check up on them. Make sure they are licensed and have a good reputation in the community. Look for local investor clubs like ICOR and ask them, and look up their license through your local city or county’s website. But most importantly, sit down with them and ask them about their business. Treat your meeting like a chance for you both to get to know each others business, and pay close attention, that way you’ll get a good feel for whether they are a good match for you.