Hard money loans can have many benefits for borrowers in just about any situation. It is important to understand the benefits when selecting the best type of financing for your real estate projects. Additionally, private money lenders focus on very different underwriting standards. Understanding these core differences is critical to successfully securing a bridge loan today. Take a look at some of the borrow benefits and hard money lending criteria below.

Borrower Benefits

There are multiple benefits to borrowers of hard money loans which can more than offset the higher costs associated with such financing.

• Less emphasis on credit. Private lenders will consider borrowers who have both good and bad credit, even those with foreclosures or bankruptcies in their credit history.
• Faster approvals. Private lenders can underwrite loans in less than two weeks allowing borrowers to take advantage of bargains that would be missed if they waited for the standard 60 days that most conventional lenders take to approve loans.
• Increased flexibility. Lenders determine the amount of the loan based on the value of the asset rather than the credit of the borrower. They may also be more willing to finance blanket loans for multiple properties than a traditional lender.
• Will work with foreigners. While conventional lenders have difficulties lending to non-U.S. citizens, hard money lenders are generally willing to work with foreign nationals or companies as long as the asset is well-secured.
• Less documentation. When issuing financing for income-producing commercial real estate projects, most lenders will only require rent rolls, financial statements, and profit-and-loss statements for the asset, but not debt-service-coverage ratios and other documentation typically required by institutional lenders.

Criteria for Hard Money

The criteria of hard money lenders are different, and usually much less stringent, than those of conventional lenders. Briefly, these criteria include:

• Appraisals. Lenders typically require their own appraisals. Appraisals of commercial properties take approximately three to four weeks.
• Fees. Hard money lenders may charge an application fee or loan-commitment fee. There are also generally origination fees of 2 to 5 percent to be paid at closing. It is a good idea for borrowers to check if the lender has a fee cap.
• Terms. These can vary greatly from one lender to another. Interest rates can range from 9 to 13 percent depending on the asset type and perceived risk of the loan. Commercial real estate is typically funded at 60 percent, though some lenders will go as high as 75 percent. Most lenders will give borrowers interest-only financing for 24 to 36 months. Others will build money into the loan to put towards payments while the property is under construction or undergoing renovations. There are also some lenders who may institute a prepayment penalty of six to 12 months of guaranteed interest.

The variations that exist from lender to lender in the hard money market mean that it is essential for borrowers to ask about specific terms from each lender they talk to. It also means that shopping around and comparing terms from multiple lenders can be very beneficial. As with other types of financing, there are pros and cons to hard money loans which borrowers should consider and weigh before applying for real estate financing.

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.