What Is Hard Money Lending?

In the world of finance, you will find two terms associated with lending: hard money lending and soft money lending. Soft money loans are usually those with variable payment schedule plans and borrower-friendly terms; whilst hard money loans are those with relatively strict terms and payment schedule plans, and everything is totally up to the lending company.

Hard money lending is usually offered by both private and commercial lenders. Private lenders are rich people who would like to make some profit by lending their money to individuals they consider good payers/borrowers. Commercial lenders, on the flip side, are financing companies that lend money as their business to people who wish to get a loan. It is usually real estate investors who borrow this kind of loan because in their case, it becomes a win-win situation. The loan providers will get their profit from the money they put out, and the borrower will likely earn an instant profit from the property he or she chose to invest on, while being able to meet the payment schedule and terms of the lender. So basically, even though the terms and payment plan might be quite strict and rigid, there are still many who decide on this for the reason that this can be a quick way to acquire finances. The instant your loan gets approved, you obtain the money instantly.

Given that with hard money lending the majority of are usually private lenders, they'll have their very own specific criteria for the loan’s approval. The real estate investor’s expertise generally is a big component impacting the approval of the loan, however there are actually other criteria too. That is the reason why a good relationship with lenders is essential for real estate investors. Developing a solid relationship with them can be done because private hard money lenders are individuals, and as long as they've got a good relationship, the borrower knows that once they find a good chance, he or she will have the required finances. Nonetheless, for those new to real estate investing , finding these individuals might not be simple to achieve; although, they are usually looking for new opportunities to loan their money. Hence, if you’re a newbie, keep your eyes and ears open for these.

Just to have a concept regarding hard money lending, these are normally short-term loans starting from six months to five years, depending on the actual terms of the loan provider; and the rules used for every loan is generally from one half to about three quarters of the property worth and also the post maintenance. In terms of the points, it will be varying between two to ten on top of the loan’s sum. Again, each one of these conditions will depend on the lender - it’s his or her call. On the other hand, it is known that when hard money loans are usually financed by private sources (individuals), the terms are usually sterner than commercial loan providers. Albeit, as soon as the investor has found the right loan company intended for his needs and vice versa, then hard money lending is definitely helpful for both parties.