Hard money lenders are involved in the real estate investment game for one purpose, to make quick profits and keep their money working for them. This means that they are not interested in tying their money up in long term loans. They are willing to approve financing quickly to a borrower without all the traditional paperwork and credit checks because they plan on charging higher than normal interest rates and point structures while requiring much shorter lengths of time for pay off. When borrowing you can expect to pay anywhere from 13-18% interest and 4-10 points up front. In some circumstances the points can be built into the loan but each loan is different depending on the property in question.
Securing financing from hard money lenders is much quicker than traditional loans. Their interest lies primarily with the property the borrower is interested in purchasing. They will not offer financing on a home intended to be a primary residence, and if it is intended to be a rental property than the borrower must be able to refinance the property prior to the original loans principal being due. Generally financing is only available for 65% of the property value so sometimes the borrower will need to secure secondary financing. This is usually not a problem for the primary lender as they are the first lienholder and will have their money repaid first in the case of a foreclosure. Other times when a rehab property is involved the lender may loan the entire purchase price but require that a construction escrow be established. This is done to ensure that the required repairs are completed on the property to bring its value to a level higher than the original purchase price. In this instance the lender will require construction schedules, bids from contractors, material and labor costs. There will be 3-4 draws for the rehab process and at the completion of each phase a property inspection must be arranged to ensure the properties value is being increased.
Real estate investors that are looking to make a quick turn around on their investment would work well with hard money lenders. Both parties are motivated by a quick profit and are not interested in tying their money up in long term investment. The right residential or commercial deal can mean quick profits for both parties involved. The lender makes their money on the high interest rates they charge and the borrower on the quick flip of the property they purchase and rehab.