Hard money loan

The complete guide to hard money loans and private investors in real estate  


What is hard money loan

Hard money loan is a loan secured by the value of a real estate property. Hard money loans are typically arranged at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution but by private investors, generally via local areas brokers who specializing in arranging hard money loans.

How to compare a hard money loan  with  a conventional loan?

The table below shows the main consideration and differences between conventional bank financing and hard money private lending financing.  Important note: This table is only provides  a very "loose" and general guideline.  In reality every loan is different than any other loans. There are many other factors that affect individual loans among them:  owner occupancy, property type, property age and condition, location, city and state regulations, co-borrowers, market trends, availability of lenders and other factors.    

 A symbol of an angel indicating an advantageous factor that benefits and sometimes even make the loan possible. (The number of symbols in the rows are arbitrarily assigned importance to each  factor)
  A symbol of a devil indicating disadvantageous factor that make it harder or impossible to obtain a loan if not met (The number of symbols in the rows are arbitrarily assigned importance to the factors e.g. 3 devils can be a deal killer)


Conventional loan Hard Money Loan 
Should be good and it will  affect the loan amount, the points and rates    
Any credit. In most cases credit will have little or no affect on the loan    
Personal Income
Must be completely verified    
Negligible- Very limited verification unless owner occupied  
0-20% for most cases (LTV can be as high as 100%)    
Must have at least 35% equity (LTV below 65%). The most critical requirement of hard money loan is equity. All other factors are less important.
Verification of other assets
Must verify some or all assets for approval     
Does not need to verify other assets beside the property (ies) that will secure the loan    
Loan Purpose
Must be verified ( loan proceeds may have restriction and limitations)    
Does not need verification (proceeds can be used be used for any reason in the majority of cases    
10- 40 years    
1- 5 years  
Points / Fees
Slow (1-3 months)    
Fast (1-3 weeks)    


The relative importance of the factors is estimated only and varied from loan to loan. Every loan situation is to some degree unique ,your own situation is unique. The only effective way to find out about your specific case and what can be done is enter a very basic request . Our lenders will review your request and reply with questions or with initial approval. Based on the lenders' reply you can modify your request and provide additional data.  See a video describing the process.   (Do not enter any social security or other confidential information at this point.)
 Loan structure
A hard money loan is a species of real estate loan collateralized against the quick-sale value of the property for which the loan is made. Most lenders fund in the first lien position, meaning that in the event of a default, they are the first creditor to receive remuneration. Occasionally, a lender will subordinate to another first lien position loan; this loan is known as a mezzanine loan or second lien.
Hard money lenders structure loans based on a percentage of the quick-sale value of the subject property. This is called the loan-to-value or LTV ratio and typically hovers between 60 and 70% of the market value of the property. For the purpose of determining an LTV, the word "value" is defined as "today's purchase price." This is the amount a lender could reasonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a one- to four-month timeframe. This value differs from a market value appraisal, which assumes an arms-length transaction in which neither buyer nor seller is acting under duress.

Hard Money is a term that is used almost exclusively in the United States and Canada where these types of loans are most common. In commercial real estate, hard money developed as an alternative "last resort" for property owners seeking capital against the value of their holdings. The industry began in the late 1950s when the credit industry in the US underwent drastic changes (see FDIC: Evaluating the Consumer Revolution).
The hard money industry suffered severe setbacks during the real estate crashes of the early 1980s and early 1990s due to lenders overestimating and funding properties at well over market value. Since that time, lower LTV rates have been the norm for hard money lenders seeking to protect themselves against the market's volatility. Today, high interest rates are the mark of hard money loans as a way to compensate lenders for the considerable risk that they undertake.

Cross collateralizing a hard money loan
In some cases, the low loan-to-values do not facilitate a loan sufficient to pay off the existing mortgage lender, in order for the hard money lender to be in first lien position. Because a security interest in the property is the basis of making a hard money loan, the lender usually always requires first lien position of the property. As an alternative to a potential shortage of equity beneath the minimum lender Loan To Value guidelines, many hard money lender programs will allow a "Cross Lien" on another of the borrowers properties. The cross collateralization of more than one property on a hard money loan transaction, is also referred to as a "blanket mortgage". Not all homeowners have additional property to cross collateralize. Cross collateralizing or blanket loans are more frequently used with investors on Commercial Hard Money Loan programs.

Commercial hard money
Commercial hard money is similar to traditional hard money, but may sometimes be more expensive as the risk is higher on investment property or non-owner occupied properties. Commercial Hard Money Loans may not be subject to the same consumer loan safeguards as a residential mortgage may be in the state the mortgage is issued. Commercial hard money loans are often short term and therefore interchangeably referred to as bridge loans or bridge financing.

Commercial hard money lender or bridge lender programs
Commercial hard money lender and bridge lender programs are similar to traditional hard money in terms of loan to value requirements and interest rates. A commercial hard money or bridge lender will usually be a strong financial institution that has large deposit reserves and the ability to make a discretionary decision on a non-conforming loan. These borrowers are usually not conforming to the standard Fannie Mae, Freddie Mac or other residential conforming credit guidelines. Since it is a commercial property, they usually do not conform to a standard commercial loan guideline either. The property and or borrowers may be in financial distress, or a commercial property may simply not be complete during construction, have its building permits in place, or simply be in good or marketable conditions for any number of reasons.
Some private investment groups or bridge capital groups will require joint venture or sale-lease back requirements to the riskiest transactions that have a high likelihood of default. Private Investment groups may temporarily offer bridge or hard money, allowing the property owner to buy back the property within only a certain time period. If the property is not bought back by purchase or sold within the time period the commercial hard money lender may keep the property at the agreed to price.
Traditional commercial hard money loan programs are very high risk and have a higher than average default rate. If the property owner defaults on the commercial hard money loan, they may lose the property to foreclosure. If they have exhausted bankruptcy previously, they may not be able to gain assistance through bankruptcy protection. The property owner may have to sell the property in order to satisfy the lien from the commercial hard money lender, and to protect the remaining equity on the property.

Legal and regulatory issues
From inception, the hard money field has always been formally unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money such that operations in several states, including Tennessee and Arkansas are virtually untenable for lending firms.

Commercial lending industry
Thanks to freedom from regulation, the commercial lending industry operates with particular speed and responsiveness, making it an attractive option for those seeking quick funding. However, this has also created a highly predatory lending environment where many companies refer loans to one another (brokering), increasing the price and loan points with each referral.
There is also great concern about the practices of some lending companies in the industry who require upfront payments to investigate loans and refuse to lend on virtually all properties while keeping this fee. Borrowers are advised not to work with hard money lenders who require exorbitant upfront fees prior to funding in order to reduce this risk. If you feel you have been the victim of unfair practices, contact your state's attorney general office or the office of the state in which the lender operates.

Hard money rate
Hard Money Mortgage loans are generally more expensive than traditional sub-prime mortgages. However all mortgage loans are not necessarily considered to be a high cost mortgage. Generally a hard money loan carries additional risk that a borrower is aware of. Rather than selling the property a borrower will opt to keep the loan and if a lender is willing to assume some of the risk by offering a hard money loan.

Interest rate on hard money
The rate is not dependent on the Bank Rate. It is instead more dependent on the real estate market and availability of hard money credit. As of 2008 and for the past decade hard money has ranged from the mid 9%–21% range . When a borrower defaults they may be charged a higher "Default Rate". That rate can be as high as allowed by law, which may go up to or around 25%–29%. Some private lenders will collect a prepayment penalty and some will not.

Hard money points
Points on a hard money loan are traditionally 1 to 3 more than a traditional loan, which would amount to 3 to 6 points on the average hard loan. It is very common for a commercial hard money loan to be upwards of four points and as high as 10 points. The reason a borrower would pay that rate is to avoid imminent foreclosure or a "quick sale" of the property. That could amount to as much as a 30% or more discount as is common on short sales. By taking a short term bridge or hard money loan, the borrower often saves equity and extends his time to get his affairs in order to better manage the property.
All hard money borrowers are advised to use a professional real estate attorney to assure the property is not given away by way of a late payment or other default without benefit of traditional procedures that would require a court judgment.


Fast Commercial Hard Money Loans

 simple and quick   
Real estate with equity, funded by private investors

Hard Money Loans, Fast Private Lenders, Special Circumstance Financing Structures are available for almost any type of commercial real estate or residential development that cannot be funded by the more traditional lender. 

Since all loans are secured only by the equity in the real estate bad credit and inability to verify income are secondary considerations.

Loans sizes range from $20,000 to $900,000 or more on properties nationwide in USA and elsewhere on this planet . Terms can be as short as 6 months to as long as 30 years. Interest rates are dependent on the risk analysis of each project, but are typically in the 8% - 15% range with low fees starting at 2%.

LendingUniverse combined the power of hundreds of private investors' resources to structure your financing requirements -- especially a hard money loan.   Start here to secure your loan!

Looking for a mobile home loan or farm loan and want to know if Lending Universe can help you find it? The list below spells out the numerous loans available through our lending network, including mobile home loans, rural properties, small business loans, personal loans and other specialized types of financing. Whatever type of loan you need, you’ll find it at LendingUniverse.com.

  • Hard Money Loans are collateral-based real estate loans made by private investors instead of banks. They can be funded by a private individuals known as PRIVATE HARD MONEY LENDERS or PRIVATE HARD MONEY INVESTORS, trusts, partnerships, real estate investment groups and retirement funds... Hard Money Loan is actually a very simple concept.
  • HM Loans are funded for business and personal use. The real estate asset may be business or personal property, and the proceeds of Hard Money Loans are not restricted to business use.
  • Creative lending solutions are needed for borrower's who have low credit scores, low income, no cash flow or are in need of a quick closing! Hard Money Loan can finance single family, commercial property
  • Our Loans are private, which does not require the same guidelines as other loan types.
    For this reason, the Hard Money Loan is often asked by people who:
    • Have a history of bad credit.
    • Have no credit.
    • Have previously had a home foreclosure.
    • Have unverifiable income.
    • Must refinance immediately.
    • Trying to finish a construction loan.
    • Currently behind on your mortgage payments.
    • Currently facing foreclosure or have a notice of default filed against you.
    • Need a mortgage loan immediately and are willing to pay more to have it close quickly.
    • Have excellent credit but cannot wait for conventional bank approval
    • Need fast cash out for a business or personal purpose 


Borrowers - Start here to secure your loan!


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