You may have heard the terms home bridge loan and hard money loans before. They are often used interchangeably and go by a number of different names. Bridge loans sometimes go by the name bridge mortg…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. Hard money lenders, also known as HMLs, are for the most part private individuals or small groups that lend money, based on the property that you are wanting to buy, rather than just your credit score. Simply put, hard money loans are funding privately. This kind of loan is also known as a private money loan. 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 private money loans and how you can obtain one.
What is a Hard Money Loan To Us?
We view our Colorado private 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 private financing 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.
Private money loans are often the quickest, surest way to have the funds to acquire property when traditional underwriting will take too long. Unusual and hard to finance properties will often require private financing. Once the property has undergone a fix and flip, a more traditional loan can replace the house flipping loan (hard money loan).
Who Needs A Private Money Loan?
The different types of people and professionals that seek out private financing range vastly. Much of the market for private 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 Colorado hard money lender may require that you back up your loan with real assets, as we do at Abbey Mortgage & Investments. If you are sure you can buy a property and then turn it around fairly quickly for a big profit and you cannot get a standard commercial or residential mortgage, you may want to think about using a private hard money lender to help you with your endeavors. In some cases, an investor will choose to use the hard loan to get into the property so that they can make some quick adjustments in order to raise the overall value 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 private hard money lender.
What are the Benefits of a Hard Money Loan?
Consider some of the benefits of a private money loan: private 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 private 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 private finance loan option 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 mortgages, turnarounds, construction, rehabilitation or “fix and flips”.
In short, a private lender 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 financing, another term for private money loans, on their Colorado projects because they know that opportunity knocks, but will not linger.
Property Types For Private Money Loans
If a borrower needs to get private financing for nearly any kind of property. This includes single-family residential, multi-family residential, commercial property, land and industrial spaces. While some private money lenders choose to specialize in one specific property type, as we do in commercial real estate lending, there are others who cover the vast range of property types and provide hard money loans for all of them. We specialize in commercial real estate financing 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 commercial mortgage loans.
What Types of Deals Are Private Lender’s 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. Private 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 private financing is fix and flip homes, land loans, construction loans when a sale deal with a buyer with credit problems, and when a real estate investor needs to act quickly to obtain a property.
Why Should You Use A Private Money Loan?
Again, there are many different types of people who seek out private money loans and they all use them for various reasons. The main reasons you should consider using a private 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 private 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 a faster rate, private 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 private money 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. 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 private 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.
Since the primary concern of the private 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 Colorado hard money 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 Colorado hard money 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 & Investments is the best of the best in Colorado when you are looking to obtain a commercial real estate financing.
Why Choose Robert Kearney for Your Private Money Loan needs?
Robert Kearney at Abbey Mortgage & 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.