Hard Money Mortgage Lenders is a common name used for several groups of real estate mortgage lenders who make non-conventional loans. These loans rely LESS on the borrower’s credit, financial strength and formal qualifying… And MORE on the asset or multiple assets used as a security, or a collateral for the loan.
In that regard hard money mortgage lenders are quite different from traditional lenders like banks, mortgage companies, credit unions and finance companies. The latter use borrower’s credit score, income, job history and financial statements as the primary and often the only loan qualifying criteria. It’s not surprising that hard money lenders are often called ‘asset based lenders’ to indicate the assets securing the loan are of utmost importance in getting the loan approved.
Hard money mortgage loan is the loan made by a hard money lender that primarily relies on real estate collateral as a security for repayment.
One of the biggest advantages of using hard money lenders is a speed of getting financing for your project. Often a hard money mortgage loan can be financed and closed a lot faster in a streamlined fashion compared to getting a mortgage loan from an institutional lender. That’s why hard money lenders are often used for projects that require quick funding, or when no conventional financing is available at all.
A typical hard money mortgage lender wants a low risk loan. The risk is mitigated by a low Loan-to-Value (LTV) ratio for his loan, usually less than 70% and often even less than 60%. That means if you intend to use a real estate property (asset) worth $100,000 as collateral for your loan, you’re likely to get a loan that doesn’t exceed 60% of the value of your collateral – in this case $60,000.
When you’re buying a distress property or a bank foreclosure, often 60% of value is more than enough to buy the property and have the hard money lender completely cover the entire purchase price. That means, you can buy great foreclosure deals with NO money out of pocket.
In recent years with slow down in the economy and softening of the real estate markets, hard money mortgage lenders, i.e., hard money lenders making real estate loans have become even more conservative.
Hard money lenders often make bridge loans, short term loans to get the borrower from point A to point B financially.