Hard Money Loans

DIFFERENT TYPES OF HARD MONEY LOANS

There are Several Different Ways Hard Money Can Be Loaned

There are similarities between each of these and some of the names are used interchangeably in the real estate & financial industries

Fix & Flip Loans

Bridge Loans

Commercial Loans

Cash Out Refinancing Loans

Investment Property Loans

Construction Loans

HARD MONEY LOANS VS TRADITIONAL LOANS

How is Hard Money Different Than Traditional Loans? There are Three Main Areas

Flexibility

Hard money lenders do not use a typical
bank underwriting process so agreements can be more flexible than traditional loan agreements. Negotiations regarding terms and requirements can be a lot less stringent with a hard money lender than a bank.

Approval

Since the most critical factor is collateral,
the lender will provide financing typically up to 85% of what the property is worth.

Speed

Hard money loans close quickly in comparison to other loans. The application process of a hard money loan can take a few days. In contrast, a bank mortgage application can take weeks to complete due to the financial records and documentation required.

In addition, the approval process for a bank loan can take a month or more. With hard money lenders, the approval process often takes less than a week.

Experienced buyers or builders who have an established a relationship with a hard money lender can get through the process even quicker than new borrowers.

Bridge Loan

Frequently referred to as hard money, a bridge loan often finances a property that may be in transition and does not yet qualify for traditional financing.

Bridge loans are short-term loans used until other permanent loan financing can be secured.

A bridge loan allows the borrower to fulfill current obligations or property rehabilitation by providing immediate cash flow

Similar to hard money loans, these loans have higher interest rates & are usually backed by some form of collateral, such as real estate

30 days - 2 years+

is the term for these loans, which can be issued through a bank or privately

Example of a typical hard money loan scenario

Marilyn and John are a young professional couple wanting to increase their savings and start building wealth.

They stumble upon a foreclosed single family home for sale that they feel would be a good fix-and-flip project.

The property was last purchased for $850,000, but the bank is willing to sell for

$700,000

The couple believes that a $200,000 investment will create a property that will sell for $1,500,000 after repairs.

A hard money lender agrees with their ARV (After-Rehab-Value) estimate and is willing to lend them 80% of the acquisition cost, or $560,000. John and Marilyn use
the loan proceeds to purchase the home and will finance the rehab out-of-pocket.
They allow the lender to put a lien on the property & they contribute $200,000 to complete the project.

If the property goes on the market and sells for $1,100,000 - $1,500,000 or more, they will net between