It’s a common myth that hard money is hard to get. The truth is that it’s only hard if you don’t know what it is, when to use it, and where to get it. With these hard money ABCs, you’ll find it’s as easy as one, two, three.

3 Basics of Hard Money Lending

Hard money loans can be a great resource for borrowers with unique credit situations or property deals who have been turned down by traditional lenders.

1. (A) Knowing what lenders like. The key to securing just about any hard money loan is equity. Private lenders are typically interested in underwriting loans secured by real estate, usually at a LTV ratio of 60% to 65% of a property’s market value. This underwriting guideline is beneficial for borrowers who own properties that aren’t yet producing enough income to qualify for conventional financing. It’s important to note that hard money lenders will almost never lend 100% of a property’s value. As discussed below, borrowers should be wary of any lender who does make such offers.
2. (B) Understanding rates and points. While these terms will vary from lender to lender, a typical hard money deal will involve up front loan fees (also called points) of between 2% to 4% of the loan principal and an interest rate between 10% and 12%. Borrowers need to know that many hard money lenders have rates and points much higher than described above.   A prudent borrower should take the time and effort to find lenders that are charging points and hard money loan interest rates within the guidelines mentioned above.  Another word to the wise: try to work with a local lender instead of a lender out of state.  Check their local references with your banker, attorney, and commercial Realtor.
3. (C) Presenting credit and assets. While private lenders are less concerned with credit scores and history than banks are, they want to know that the borrower will be able to repay the loan without defaulting. If a borrower has additional equity in other properties that can be used to make payments in the event of a worst-case scenario, it will increase their credibility with the lender.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.