The Process of Hard Money Lending

Hard money lending is an industry that often gets overlooked. When you think about borrowing money, most of the time, you think about banks and traditional mortgage lenders. However, hard money lenders present another option to get the money you need. Because it is out of the spotlight, many people have no idea how the process of hard money lending works.

Who are Hard Money Lenders?

In order to fully understand how hard money lending works, you need to understand who hard money lenders are. Hard money lenders are not banks or traditional mortgage lenders. In most cases, they are individuals who have some extra money to lend.

In some cases, they may be a group of investors that have pooled their money together to create a hard money lending business. The important thing to realize is that they want a higher return on their investment than they could get from investing in the market. They are not bound by the rules and regulations that traditional mortgage lenders are, so they can do some unorthodox things.

Distressed Situations

Hard money lenders make a living out of lending to borrowers in distressed situations. They lend money for distressed properties and to those that are distressed financially. When a house is about to be foreclosed on, hard money lenders can step in and refinance the loan. When a person is on the verge of bankruptcy and needs money to keep things afloat, hard money lenders are there.

As a result of higher risk, hard money lenders charge interest rates that are much higher than the traditional lenders. They will also charge higher costs and fees for the loan itself.

Lending Criteria

The lending criteria for hard money lenders are different from traditional lenders. With a traditional lender, a large emphasis is placed on your credit history and your income. With hard money lenders, those qualification standards are secondary because they know that there is a high probability of default on the loan.

Their main area of emphasis is the property, or collateral involved in the loan. They prefer to invest in properties that are highly attractive investments. They want to buy properties that they would have no problem selling in a relatively short period of time in order to recoup their loss, in the case of default.

It is also because of this fact that they have a low loan-to-value ratio on most of their loans. About the highest loan-to-value ratio that you can get is 70%. This allows them to ensure that they will get their money back when a property goes into default and they have to foreclose. Therefore, if the property that you want to refinance is not attractive from an investment standpoint, you might not be able to get the loan that you need from a hard money lender.