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A Borrower’s Guide: FAQ’s about Hard Money

Are all hard money lenders dishonest?

While decades ago many hard money lenders earned a bad reputation, times have changed and so have hard money lender practices. Today’s professional hard money lenders specialize in offering a wide variety of loans, including but not limited to, apartment building loans, bridge loans, commercial building loans, commercial property loans, merchant cash advances, real estate development loans and residential home bridge loans.

How are hard money loans funded?
Private investors pool together money and help create hard money loans. Sources can range from a single individual to a pool of investors that each has different fractional interests.

Are hard money loans expensive?
Hard money loans are more expensive than bank loans, but for several good reasons.
1. Investors require better returns than simply savings accounts or bond markets.
2. Hard money loans involve more risk, which means a higher interest rate. A 20% loan-to-value loan on a rented commercial building is a less risky investment than a residential rehab loan on a 60% loan-to-value fixer-upper home in poor condition bought in a distress foreclosure sale.
3. Hard money loans are negotiable, which means that the lender must find a willing and able investor to accept all risks.

Are hard money loans only available for desperate borrowers?
A hard money loan does not mean that a lender is desperate. It can also mean that a loan does not conform to conventional lending practices. This can include commercial bridge loans, land loans, rehab loans, etc.

Is it true that hard money lenders want to take properties?
Hard money lenders make livings by serving private investors’ investments. They generally earn approximately 0.5 to 1% of the loan per year. Their incentive is to keep servicing loans, not to take properties.

How do people make payments on hard money loans?
There are several ways that borrowers can make payments to hard money lenders. First, they can make payments directly to the private money lender or they can arrange to make payments to a separate servicing company. These services are very rudimentary and simple, which means no frills and very basic software. Often times, this means lack of Internet access that big, fancy and corporate banks provide.


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