When one discusses real estate loans the term ‘hard money’ often comes up. But what is hard money exactly? Well, hard money is also known as private money and it is used when describing any loan that is made by either a private person or an entity. When it comes to real estate transactions in the California area both terms are frequently used.
The main difference between the usual types of loans and hard money is that the latter is usually based entirely upon the collateral of the property concerned. Because of this reason, you will discover that very often the loans are written way beneath what the property’s value actually is. From the investor’s point of view, they wish to make sure that there is sufficient equity available should there be a loss, or if the borrower defaults on their payments.
Often times hard money loans are from private investors. However, they can also be from private institutions and entities.
If you are undecided about whether private money is the solution for you then you will find the following information relevant. When deciding on this as your possible course of action you will need to consider a number of points. You should make sure that you have tried the usual sources first. These would include loans from either national or regional banks, as well as credit unions. In most instances these avenues will provide the borrower with the most competitive pricing and terms.
However, you may find that a normal bank does not wish to finance your transaction in which case you can then look into whether or not you qualify for a private money loan. To be able to take advantage of this option you will need equity in the transaction as well as the ability to repay the loan at two or three times the amount you borrowed in interest and other fees.
This may well cause you to question the logic of utilizing private money. But there are times and occasions when using this type of loan makes sense. Reasons for using private money would include:
You require a Bridge loan.
If you require cash in order to buy property.
You need to rehab a property to sell.
You find that you are in short escrow and you need to buy without delay.
For financial reasons you find that you need to access the equity in your property.
You have a bridge loan that needs an extension.
You have many properties and a bank will not finance any more.
You have a unique property and a bank will not lend on it.
You are in a strong equity position and you are able to repay the loan but due to a negative credit record the banks have turned you down.
You need temporary cash flow for a business.
Like most things in life, there are advantages and disadvantages of private money. Hard money is typically expensive and has shorter terms than most bank loans. However, the speed and flexibility in which these loans can be done is extremely valuable. It can be a useful tool for some borrowers’ California real estate loan needs.
Hard money is not hard at all! Unlike a bank loan which can take a while to process, hard money loans usually do not take that long. But, because of the attached fees and the terms and conditions some people feel that it is not a worthwhile option to consider. Although not everyone will find it the right solution for their needs, hard money is often the right way to go for many others.
Topics: Real Estate, Private Money, business, Loans