April 17, 2008
If you are working in the foreclosure niche of real estate, you know that right now truly is a great time to buy.
In order to really capitalize on this market and to be able to seize the profit opportunities that are afforded the real estate professional, you are going to need a good source of funds. Every real estate agent or investor needs to have a competent hard money lender on speed-dial. We have found that the ability to close quickly on a distressed property can sometimes be the difference between a great payday and no payday at all.
What is a hard money loan? A hard money loan is a loan in which the primary criteria for the loan is the value of the property. It is for the most part, an asset based loan. Hard money loans can be from institutions, credit unions, or private individuals.
Terms
Those who participate in hard money lending do so because they can often command much higher interest rates due to the risk involved. There is no typical hard money loan. As most hard money lenders are lending either their own money or the money of their group, they are able to set their own lending criteria in terms of duration, fees, term, pre-payment penalties, types of properties, and even location where they want to lend.
Credit Score
As many hard money loans are made by private investors, credit requirements vary. Usually the credit score of the borrower is not as important, value of the collateral property. As lending in conventional market has turned quite tight, many hard money lenders are being looked at to step in and help deals get done.
While some hard money lenders may require a certain credit score, others may not.
LTV
As with all other hard money terms, the hard money lender that you work with will set their own LTV. typically, the loan to value ratio is 50-70%. For example, if the hard money lender feels that the property is worth $100,000, they would potentially lend $50,000-70,000 against it. This low LTV provides a good deal of security for the hard money lender, in case the borrower does not pay and they have to foreclose on the property.
As you can see, having relationships with competent hard money lenders will allow you to purchase properties or get your buyers funded for short sales and REO purchases.
We have worked with hard money lenders that can close in as little as 24 hours from receiving clear title. I doubt you will be able to find that kind of turnaround with a bank. As the housing crash has continued, more and more transactions are being funded by hard money lenders.
In fact if you have funds available and want to earn a secure return, becoming a hard money lender may be something you want to look into.
Here are some questions you will want to ask a prospective hard money lender to make sure you get the best deal possible:
1. Where do you lend?
2. What kind of properties will you lend on?
3. What are your credit requirements?
4. What is your turn around time to lend?
5. Will you lend to a LLC
5. Do you require a personal guaranty
6.What is your interest rate?
7. Is it interest only?
8. What is the term of the loan?
9. Is there a pre-payment penalty?
10. Can the loan be extended beyond the stated term?
11. Is the loan assumable if I sell the property?
12. What are the points and fees you charge for making the loan?
13. Can they be rolled into the loan?
14. Do you lend based upon the ARV or the contract price?
15. Will you escrow for repairs?
16. What is your repair escrow disbursement policy?
17. Will you provide a Proof of Funds Letter so that you can buy REO properties and execute your short sales
18. Can I rent out the house or move-in while the loan is outstanding?
If you are serious about working the foreclosure market, or if you want to buy foreclosures, you will need a hard money lender on your team.
There is a lot of money to be made buying and selling foreclosures, REO properties and in executing short sales. Having the money to close quickly can substantially increase your ability to earn huge profits in foreclosures.
We have compiled a list of hard money lenders that you can access by clicking below. While this is a very large list, it is not by all means the COMPLETE list. We will continue to add names of hard money lenders from across the Country. If you are a hard money lender and want to be included on the list please send us an email and we'll add you to the list.
If you come across a lender on the list who is no longer making loans (we're in a crazy market) please send us the info so we can keep our hard money lenders directory up to date.
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