Let’s say that you want to get started flipping houses. It’s certainly not a bad idea, especially when you consider the white-hot Colorado real estate market. But have you given any thought to how…Read More
Hard Money Loans
What is ‘Hard Money’?
When you hear the words “hard money,” you may not have a single clue as to what it refers to. After all, you are probably just as familiar with hard money as you are with soft money(which also exists). However, most people have no idea what a lot of the terms used by loan companies mean at all. In the simplest terms, hard money lenders, also known as HMLs, are for the most part private individuals or small groups that lend money, also known as hard money, based on the property that you are wanting to buy, rather than just your credit score. In most cases, these loans cost, percentage-wise, much more than a mortgage. In some cases, this amount can be up to double what the regular mortgage costs, and there are higher origination fees. On the other hand, hard money loans come with their own set of benefits. Continue reading below to learn everything you need to know about hard money loans and how you can obtain one.
What is a Hard Money Loan To Us?
We view our Colorado hard money loans as investments to borrowers who need the money for a time-sensitive opportunity, as opposed to national bank loans which can take months to be approved. A hard money loan is a private money loan secured by hard assets, or collateral, with secondary consideration given to lending other 3 “C’s” – Character, Capacity, and Cash Flow. Collateral for hard money loans in Colorado may run the spectrum from raw land on the eastern plains to resort property at tree line in our beautiful Colorado high country. Other collateral will also be a factor some of the time, depending on the circumstances.
Hard money loans are often the quickest, surest way to have the funds to acquire property when traditional underwriting will take too long. Unusual, hard to finance properties will often require a hard money loan. Once the property is improved or rehabilitated, a more traditional loan can replace the hard money loan.
Who Needs A Hard Money Loan?
The different types of people and professionals that seek out hard money loans range vastly. Much of the market for hard money loans is made up of developers and house flippers. Conversely, many people will use it to fund deals because they are able to borrow up to 100 percent of their purchase price. In cases like this, however, a hard money lender may require that you back up your loan with real assets, as we do at Abbey Mortgage and Investments. If you are sure you can buy a property and then turn it around fairly quickly at a big profit, and you additionally cannot get a standard mortgage, you may want to think about using a hard money lender to help you with your endeavor. In some cases, an investor will choose to use the hard money to get into the property so that they can make some quick adjustments in order to raise the overall worth of the property and then they will get a new loan from a bank. This loan will be based on the property’s new and improved value and will allow for them to pay off the money that was loaned to them by the hard money lender.
What are the Benefits of a Hard Money Loan?
Consider some of the benefits of a hard money loan: Hard money loan amounts are generally a function of the property’s value, not the acquisition cost; hard money loans can be obtained quickly and its terms can be quite flexible based on maintaining the collateral coverage on your Colorado property; when you need breathing room on a project or investment, a hard money loan can fill the need, even though, the Colorado banker may have said, “no”; Some lenders do not want short-term loans on their books, but a hard money loan on your property will typically allow an early prepayment, especially, if you ask for this consideration up front; when the opportunity is as large as a Colorado fourteener, a hard money loan may cost more than a bank loan, but you can get right on with the development, turnaround, or construction work, without risking the deal, by risking the financing with a traditional lending source. Hard money loans are a great source of bridge financing, turnarounds, construction, rehabilitations or “fix and flips”.
In short, a hard money loan can make your deal happen, when you really need to make that Colorado investment work out for the better; sophisticated investors will often use asset-based loans, another term for private money loans, on their Colorado projects because they know that opportunity knocks, but will often not linger…relative to the profits of getting the right deal, right now, a hard money loan is dirt cheap!
Property Types For Hard Money Loans
If a borrower needs to get a hard money loan for nearly any kind of property. This includes single-family residential, multi-family residential, commercial property, land and industrial spaces. While some hard money lenders choose to specialize in one specific property type, as we do in commercial, there are others who cover the vast range of property types and provide hard money loans for all of them. We specialize in commercial hard money loans because we know this professional realm like the back of our hands. We are familiar with what kind of borrowers are worth investing in and we can offer plenty of guidance when it comes to navigating the waters of a commercial hard money loan.
What Types of Deals Are Hard Money Loans Used For?
As we mentioned previously, hard money loans are not right for every deal. When you are purchasing a residence with good credits, income history and there are no issues with foreclosure or the sale in general, you will likely want to use a bank for conventional financing. Hard money loans exist as a source of financing that is used when banks are not an option for you or the loan is only needed for a very short amount of time.
The ideal situations for using a hard money loan are fixes and flips on homes, land loans, construction loans, when a sale deal with a buyer with credit problems or when a real estate investor needs to act quickly to obtain a property.
Why Should You Use A Hard Money Loan?
Again, there are many different types of people who seek out hard money loans and they all use them for various reasons. The main reasons you should consider using a hard money lender is if you need to obtain the loan in a short period of time. It is more common than not that a hard money loan can be funded to the borrower within a week of when the money is first desired. This is much different from using a bank loan, which can take anywhere from 30 to 45 days.
When it comes to the application process for a hard money loan, the entire thing will only take a day or two. In special cases, the loan may even be approved the same day that the application is filled out. Again, this is never something that could be achieved if you were to seek funding from a bank.
Because funding can be obtained at such a faster rate, hard money loans offer a significant advantage to borrowers. This is especially true of real estate investors who are trying to acquire a property that has many competing bids. Getting a seller’s attention is much easier for the investor when there is potential to have a quick close because a hard money loan is on the table.
A borrower may also have to opt to get a hard money loan in the case that they have been rejected by one or more banks for a conventional loan. This is not uncommon because life can be complicated. People often experience short sales, foreclosures, credit issues and more that get in their way of achieving what they are working for. Hard money loans can help in cases like this and hard money lenders will look past issues like this and can provide funding so long as they know the loan will be repaid and that the borrower also has enough equity invested as well.
Since the primary concern of the hard money lender is that they are concerned with the amount of equity the borrower has invested in the property that is going to be used as collateral, they are far less worried about the borrower’s credit score. Even if there are issues on a borrower’s record (foreclosures or short sales), the lender is likely to look beyond them as long as the borrower has the capital to pay the interest that is on the loan. It is also possible that the lender will take into consideration what the borrower plans on doing with the property. If the plan that is presented is not reasonable and doesn’t explain how they plan on paying off the loan, the chance that the lender will still be interested in loaning the money is slim to none
Finding a Hard Money Lender to Work With
When you are in the market for a hard money lender, it can often be a difficult process. One of the best ways to locate a reputable lender is to ask around. Find out where other people have obtained their loans and what their experience was like. You could also choose to attend your local real estate investor club meeting for a more clear idea of who the good and bad names are in the hard money loan business. This is also a smart idea as it will allow for you to network with other potential borrowers, hear their stories and learn from their mistakes. On the other hand, you could just take our word for it. Robert Kearney at Abbey Mortgage and Investments is the best of the best in Colorado when you are looking to obtain a commercial hard money loan.
Why Choose Robert Kearney for your Hard Money Loan needs?
Robert Kearney at Abbey Mortgage and Investments has a wide range of experience in the real estate world and in the world of lending. This real-life knowledge makes him a valuable member of your hard money financing team, one you shouldn’t be without. With extensive experience in Construction Management, Development, property zoning and rezoning, lending, workouts, property investment, property management and much more, this hard money lender has seen complex financings from every angle. This means he will know the mistakes you should avoid before you ever even consider making them and he will work with you closely to ensure that your lending process is essentially seamless.
This enormously insightful and creative perspective can make the difference for your investment. These insights and expertise mean that for your hard money loan in Colorado, you need his insights to help your project succeed.
Call Abbey Mortgage & Investments, Inc. at 970-532-4243 now or fill out this form for a FREE Hard Money Loan evaluation.