OfflineI have spent most of my investing career researching financing. My degree in college is in banking and financing and I have held a mortgage brokers license. One of the areas I like for financing quickly is hard money lenders. I have spent years learning how to work with hard money lenders correctly. Below is listed the information I have compiled on hard money lenders:
Contents:
- Hard money vs. Private Lenders vs. Mortgage Brokers
- Hard money lenders are creative because they are private
- How hard money normally work and can work
- What to look for in hard money lenders
- How to find hard money lenders through various means.
Hard money vs. Private Lenders vs. Mortgage Brokers:
- Hard money lenders are lenders that are private companies or people that use their own money to invest in real estate. They are currently investing in real estate and know what they want to lend on.
o Hard money lenders come in two categories: Private and conventional.
Private hard money are just like they sound private and creative. Conventional hard money are just like banks – hard to work with and plenty of hoops to jump through while pulling credit, checking income, and requiring a lot of paper work.
- Private Lenders are lenders that are private companies or people that use their own money to invest. They are most likely investing in CD’s, Stock Market, Money Market, Savings accounts, IRA’s, etc. currently. Because real estate is often a new investment for them there are laws associated with working with them.
- Mortgage brokers finance for long term purchases. If you plan to do quick cash deals these lenders are not usually for you. If you do a short term loan with a mortgage broker the mortgage broker will often be mad. Why? The bank they brokered the loan for will want the money paid to them from the bank back with other fees. The broker won’t work with you many times if they get hit with fees and have to return their commissions. Mortgage brokers usually take 3-4 weeks (30 days) to close.
Hard Money Lenders are creative because they can be private:
- Because many hard money lenders are private they get to decide what their money invests in, or not invests in. They do not have the stipulations that banks have.
- Banks are not in the business of holding properties. Banks want you to pay your payments and will only lend to those that meet very specific criteria. High caliber credit, long term borrowers.
- Hard money lenders on the other hand are not unfamiliar to owning property. They will take more risks in the borrower because they may make more money if they get the house.
o Hard money lenders are ok with more risk.
- Many say hard money lenders are too expensive and not to use hard money but they get the deals done and fast. Often times the speed of the hard money will allow you to get better purchase prices and beat out the competition that does not close as fast as you.
- Because hard money lenders work with their own money and not an institutions money they can loan such as:
o Full Purchase
o Wrap closing costs into the loan
o Pay for fix up costs
o Take a second loan
o Take less interest while sharing profits
o Partner on deals
o Combinations of any loans
- One of the other major reasons hard money lenders are used is because they have cash. Cash can close in a matter of days and sometimes in just a day.
o This works well when doing short sales or other needed quick closes. In a short sale a lender may call you to accept your offer if you can close by the end of the month – which is in 4 days. Conventional financing cannot close this but hard money can. Banks while accepting short sales ask for fast closes a lot. They have quotas to fill in selling foreclosures and will accept contracts on a whim – often days before the end of the month and you are to close in just days.
What Hard Money Lenders normally do:
- Interest Rate: 12-18%, interest only
- Points (percent of loan amount): 2-5 points
- Term: 5 years or less
- 60 – 75 percent LTV or ARV
o The lenders can increase or decrease the interest, points, amount they lend, terms or anything with the loan. It is their money.
- ARV is After Repair Value. This means that the lender finances a percent of the value of the property or value of the home when it is fixed up.
- LTV is Loan to Value. This means that the lender finances a percent of the offer given on a home. This has nothing to do with the value.
o Examples of these are as follows:
Jane has a house she wants to buy for 150K. She offers 100K. A lender of ARV and a lender of LTV are financing 75%.
• The lender that is working with ARV will lend $112,500 (75% of $150,000 value is 112,500)
• The lender that is working with LTV will lend $75,000 (75% of $100,000 offer is $75,000)
The lender working with ARV would pay for 100% of the purchase for Jane. (It is important to note here that for hard money lenders there is no such thing as 100% finance loans. There are loans where they will cover 100% of your purchase if you purchase the home under their ARV percentage.) Her offer was $100,000. The lender would cover up to $112,500. Some lenders that work with the ARV like this will pay her money at closing also. In the scenario of Jane she could potentially get $12,500 for fix up or just money in her pocket.
The lender that works with LTV may not be bad because they may allow a second or even third loan on the property to equal 100% of the purchase and some LTV lenders will pay fix up costs.
What to look for in a hard money lender:
- I use a database in excel to keep track of all the questions that will follow:
o What is their interest charged
o What is the points they charge
o Do they require points to be paid at closing
o Will they take the point on the “back end” or as part of the loan
o Will they do 1st, 2nd, 3rd position loans
o Will they pay for fix up
o Do they work off ARV or LTV
o What percent of the ARV or LTV will they lend
o Will they allow you to make payments after you sell the property or every other month or quarterly
o Will they allow 2nd or 3rds after them
o Will they pay cash out as long as you are under the ARV
o What is their minimum and maximum amount financed
o Will they loan on residential
o Will they loan on commercial properties
o Will they loan on properties at the foreclosure auction
o What is the fastest they can close
o What is required to close quickly
o Do they require a credit check
o Do they require income verification
o What is the loan term
o Do they have a pre-payment penalty
How to find Hard Money Lender through various means:
- Internet
o This is a hard way to find “private hard money”.
You will find a lot of “conventional” hard money lenders this way. Because the lender is on the internet with a lot of traffic they are very strict with how they lend.
- Newspapers / Penny Savers
o This is a great way to find lenders. You will need to watch the papers regularly. On occasion hard money lenders in your area will place an ad that they have money. Call these ads.
o There are also ads that say something like “pay day loans” these companies have a lot of money and will do hard money lending.
- Other investors
o Other investors may give you hard money lenders to contract
o You may go to a real estate club and find a successful investor. Get their name and take it to your recorder / clerk’s office and look the name up. See who is financing their deals. Take that name and call it. This does not hinder the investor but helps the hard money lender to finance more.
- County recorders / Clerks
o At the county recorder or clerks you can do searches for private hard money lenders that have done loans more than once to one person.
- Foreclosure auctions
o You would go to the foreclosure auction and look for investors. At most auctions you need cash. Either the person bidding at a foreclosure auction has money or is using someone’s money. If you can get a card from an investor at the auction you can take their information to the county clerks and look them up as I have described above.
- Mortgage brokers
o Occasionally mortgage brokers will have contact to hard money lenders but most of the time they have contact to conventional hard money lenders.
Simply: HML are ASSET based lenders. They lend based on the property only ie 65% of FMV.
No buyer qualification ie no debt to income ratios, no tax returns, no pay stubs, no credit reports.
Sometimes even no buyer's money in the deal (though this is changing now).
what can you tell me about HARD MONEY lenders? do you have one that you would refer me to?, SULLY.
YOUR HERO, SULLY
i know what they are, i don't want to sound dumb or anything especially after nstreets strong post, i'm just having trouble getting one to look @ me? SULLY.
YOUR HERO, SULLY
I have the same question. Maybe they're right under our noses and we don't even know it. I haven't taken the time to look yet.
"Obstacles can slow you down, but they can only stop you with your permission." Dean Graziosi (BARM pg 101)
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"For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." Jeremiah 29:11
@ least i'm not alone, i just recently started learning about HARD MONEY lenders, SULLY.
YOUR HERO, SULLY
Once you have found the hard money; which I have given most of the ways to find them; I ask them if they are interested doing hard money with me. The lender may know nothing about me but I will still ask them this.
Once they say yes, and almost all of them will, I go through the questions I have listed. Truly I don't care if they want to work with me, because most will, I want to know if it is worth my time working with them.
Once I have received the information about them and how they loan I put them in my database then if I have property that will fit their terms and I like the lender I call them and give them the information on the deal I am looking at. Sometimes I do not know if my deal fully fits their requirements but looking at my database they are close I will still call them and see if we can work something out.
Overall I have found that finding hard money is as easy as asking them if they want to hard money properties.
For those that are interested I can send you a database I have created if you PM me with your email address. Keep in mind that many lenders change their terms, and contact information regularly (because they can) and this list is not a godsend so I suggest you look for investor on your own in your own area - they will be the best with the lowest terms and easiest to negotiate with.
you said...
"You may go to a real estate club and find a successful investor. Get their name and take it to your recorder / clerk’s office and look the name up. See who is financing their deals."
Why would the lenders name be anywhere for yo uto find? The lender is giving the money to the investor. The house is being bought under the investors name or co's name...not the lenders....please explain.
Thanks,
D
Hazco Investments LLC
D
Hi nstreet, I am having trouble selling my home with todays market of course. Would it be advisable for me to try to locate a hard money private lender just for the purpose of paying off my existing mortgage balance which is 158,000. Do hard money lenders have a specific amount that they loan? Like will they lend more than 158,000 so that i still could Payoff mortg balance and use the rest to invest in maybe a triplex or apt complex? Cindy.
cindy REI
I know sully, I am considering that too, lets see what the coach says. Cindy
cindy REI
Hey Sully, I have been trying to get educated on this one too, and from what i understand, i believe it has alot to do with the equity you have in your home and not so much based on your credit. Will wait for a response from the coach. Am i right or wrong? Cindy
cindy REI
most HARD MONEY lenders don't even pull your credit, they usally go by either LTV, or ARV, most are somewhere in the vacinity of 60%-70%, i don't know that going threw a HARD MONEY lender is a good idea @ this point though, i know your anxious to get started but be patient. YOUR HERO,SULLY.
YOUR HERO, SULLY
HELOC cindy, did you look into that? SULLY.
YOUR HERO, SULLY
No Cindy.. It wouldnt help you to replace your current loan with a HML... HML are really only for short term financing. The terms are NOT good. And many of them have balloon payments.
Cindy, I think you wrote awhile back that you have a 3-year balloon payment coming due on your house and your mortgage broker wants you to renew your current mortgage. But you are wanting to sell your house as soon as possible. Is this correct? When that paymnt is due and what interest rate you can get will be a big factor in determining what you decide to do as far as refinancing.
Let's go back to your "money to be made" topic to discuss further.
"Obstacles can slow you down, but they can only stop you with your permission." Dean Graziosi (BARM pg 101)
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"For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." Jeremiah 29:11
I did alot of research on hml today and you are exactly right, that is not 4 me. Thank you. Cindy
cindy REI
Hi Rina, My mortgage balloon is not due until april of 2010, I want to sell now so that i have plenty of capital on investing. When 2010 rolls around i don't want to go with this broker again, they are making a killing off me. Last year my credit score was only 660 and now my score is 785 as of 30 days ago, but i am on a fixed income and have to use private financing because of my fixed income. I want to sell my house sooooooooo bad, had a contract but the people got out of it due to a death in the family, that lead them to Texas, still bringing offers but not good enough. I can't refi because of fixed income. Rina, what would you do. I am also thinking of doing a lease purchase and asking for 10% down on 225,000 which is 22,500 and whomever does the lease purchase will be required to have financing in order within 15 months. Not sure, what would you do personally? At least i could get started in investing alittle. Thanks Rina. Cindy
cindy REI
No Sully i didn't because i thought i couldn't due to my having a private finance lender{BROKER} I put 47,000 down on this house from a previous house and don't know how to ask him, in other words i guess i am afraid he will say no, that money was required for you to have that house.I Don't know how to go about it. Can you or anyone shed some light on this 4 me? please help me on this one? Thank you so much. Cindy.
cindy REI
thank god i'm really up front and personal, meaning i've been negotiating my whole life, so when it comes to asking people for anything (closing deals,etc.) i have NNNNOOOO problem playing "hard ball", if i wasn't like this we would have some problems later on with deals and short sale negotiations, when you have a chance i would like to "talk", YOUR HERO,SULLY.
YOUR HERO, SULLY
Thank you for taking on your new "student". Let me know if I can help with anything. Good luck to both of you!!
Sincerely,
Rina
"Obstacles can slow you down, but they can only stop you with your permission." Dean Graziosi (BARM pg 101)
*********************************************************************************
"For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." Jeremiah 29:11
"You may go to a real estate club and find a successful investor. Get their name and take it to your recorder / clerk’s office and look the name up. See who is financing their deals."
Why would the lenders name be anywhere for yo uto find? The lender is giving the money to the investor. The house is being bought under the investors name or co's name...not the lenders....please explain.
Thanks,
D
At most courthouses the lender is listed with the mortgage or trust deed as well as with the purchaser. Knowing this if I do a search at the courthouse, known often as an abstract, for a purchaser I can find the mortgage they received and thus the lender. Again, I may find the mortgage even if some states are non-disclosure states that do not disclose the amount of the mortgage.
If I find a lender listed with a private name or sometimes private company I can assume that most likely the lender is a private or hard money lender.
The information in the post I gave at the very beginning is exactly how I find hard money lenders. If you would like a national list that I have created around the country please PM me with your email address and I would be happy to send you a list.
I would not get a hard money loan because I cannot sell the house.
However, if I wanted to pull out my equity I may. This depends on the hard money lender. Many of them may be negotiable and you can pull out equity at a low cost.
The difficulty that most people do not understand is each hard money lender is completely different. Different in how they act, what they loan on, how much they loan. There is a tendency for people to want a cookie cut format for hard money lenders. Most people expect hard money lenders to be much like the banks. Banks are similar, they do similar things so we know what we get if we go to one lender and then another and we have grown to expect this. Because hard money uses their own money most of the time they get to ask what they want and loan pretty much what they want as long as they loan in accordance to some laws they are left to circumstance.
An example of negotiability for hard money: I occasionally will do hard money loans. If I know you or like you I might do an ok interest rate. If I love your deal I will give you better terms. I do have a limit of $30,000 but may go larger if I like what I see. I will lend for fix up costs or maybe not.
Hard money lenders, most, do what I do; they leave it up to circumstances. Remember you can always negotiate. If you negotiate you may find a loan that fits well enough for you to pull out equity.
I have negotiated with hard money to lower my interest rate charged now to say 6% if they take 25% of the profit later. I have negotiated a loan of just 10% with no points and no payments until I sell the house (thats lower than most HELOC's and credit cards). What else can be done? It limitless.
I would never use hard money on my PR. There are far better alternatives.
Absolutly 110%
Hazco Investments LLC
D
If anyone is considering using private money just make sure you find a great deal and you are able to rehab fast. You want your house to be right back on the market asap. The carrying costs are high but worth it if you find a good deal.
Call around to mortgage brokers and ask if they can recommend hard money lenders.
Money flows to good deals
Zeek
If I open an LLC and put 7K into the account, does anyone know if there is a chance that would better my chance of getting a loan thru the LLC. And if it does help am I able to draw out the original 7K from the LLC and use it elsewhere? IE... fix up costs, etc...
will still have no credit for the LLC. This takes a good year. Open the LLC and open 1 or 2 credit cards in the LLC's name. Keep a small balance on them and pay on time everytime. This will establish some credit for your LLC, which will help the changes of getting a loan through the LLC
Hazco Investments LLC
D
So, just keep the money out and save the hassel of depositing and then taking it back out? gotcha. thans again
she's 100% correct in that post. SULLY.
YOUR HERO, SULLY
unless I got really drunk lastnight and got an operation...that would be HE
Hazco Investments LLC
D