mortgages

Hard Money the Easy Way – The 5+/-2 Things You Must Know About Hard Money

By Amar Brown

Since the sub prime situation hit critical mass there has been a lot of interest in hard money loans. In this article I hope to clear up some of the hype surrounding hard money. Also to offer anyone looking for hard money a practical guide to seeking hard money funding.

Here are the 5+/-2 things you should know about hard money.

1. What Hard money is.

2. The Hard part of hard money

3. The Best Uses for Hard money

I’ve never been big on intros so let’s get into it.

1. What Hard money is.

Of course the first thing we want to do is define hard money. It seems this product has become hot in today’s market yet a lot of people are still unsure as to exactly what hard money is. I define hard money as non conventional or private financing with private funds.

Since hard money loans are not backed by government safeguards, the guidelines are less stringent and the documentation required is minimal. This means that they are easier to qualify for.

The credit scores you need to qualify for hard money loans is lower then you will need from a conventional lender and in some cases you need not to worry about your credit because most hard money lenders have no minimum credit guidelines.

You may hear the term bridge loan being used in place of the term hard money which is okay it describes one of the main purposes of hard money a short term loan to quickly get from point A to point B. IE to get from acquisition to a point where maybe you can secure some long term financing.

To sum it up the main things to remember about hard money is quick closings, lower credit guidelines and minimum documentation.

Hard money is not conventional financing (I told you that in section earlier). You should never use hard money where you need long term financing, because over the long run, the rate on a hard money loan will kill you (more on hard money rates later).

And as far as terms go most hard money lenders have no long term products

2. The hard part of hard money.

In this section I want to talk about the drawbacks of a hard money loan. Now when I say drawbacks it’s not saying that hard money loans are any worst then conventional financing, but it would be unfair to talk about hard money and offer all praise and no criticism.

Quick closings, lower credit guidelines, minimum documentation needed, your saying to your self what more could I want from a loan and how can they call a loan like that hard.

Well once you know the answer to that question you will know whether you can stomach a hard money loan.

The first hard part of hard money is the fees. Whether you go to a lender or broker expect to pay anywhere between 2 points and as many as 10 points in fees for a hard money loan. (I’ve heard rumors of being charged even more)

If you are extremely rate sensitive or even mildly rate sensitive then a hard money loan is definitely not the way to go for you. You can expect a rate in the range of 9% and as high as 24% depending on the lender and the terms. (I’ve heard rumors of lenders charging higher rates). Usually the shorter the term or the more complex the loan the higher the rate.

I know you are thinking where are the feds to shut down the loan sharks? But since this is private money not institutional, not federally regulated this is all fair. In this case it is their money, their rules their rates.

You can not borrow 100% of the value of the property. Now this is a thing most people get confused about. Some conventional lenders still offer 100% loans but since the sub prime situation, hope your credit score is off the charts and you have a lot of money in reserve, because qualifying for one of those now is almost is almost impossible.

If you do not qualify for the 100% loan a traditional lender will only loan you a portion of the purchase price, even if there is equity in the property they will want you to put money toward the purchase. So for instance if you qualify for 80% and the purchase price of the property is $80,000 even if the property is worth $100,000 (which would leave 20% equity in the property) the bank would cap you out at $64,000 (80% of $80,000). In order to get the $80,000 from the bank you would need to contract for $100,000, but you will still need $20,000.

Most hard money lenders will give you 100% of the purchase price but not 100% of the value of the property. Most hard money lenders have a ceiling of 70%-75% (of course I have heard rumors of hard money lenders going higher) of the current value of the property or of the A.R.V. (after repair value, more on that in the next section) they want you to leave equity in the property. This is their protection in case of default, a property they can possibly sell quickly because of the equity. This is the main reason behind the relaxed guide lines. The trick is to buy below market value, hard money lenders like good deals.

Now these may seem like drawbacks but in the right situation the benefits of hard money usually outweigh the drawbacks. This brings us to the next section.

3. The best uses for hard money

Hard money is not for every situation, here are some ideal hard money situations.

You need to move on a deal and close fast. Conventional financing with the rate rollercoaster, paper work requirements, underwriting guide lines, etc. can sometimes take a little while longer then you have to close (anywhere from 30 days to never). If you have a deal you need to move on quick you can use hard money and close in as little as 2 days.

You want to purchase multiple properties over time. A traditional lender will want you to complete the entire process for each loan, some hard money lenders once they are familiar with you, and of course you have a good payment history, will not even need you to submit applications for future loans.

You have a property that needs rehab or renovation. Hard money and rehab properties (fix and flips) go hand in hand. This is one of the best scenarios for hard money.

Most conventional lenders will only lend on properties in move in condition, and if the property does need renovation or repairs that is on you. And like I said before you must qualify for 100% financing if you want to get more then a portion of the acquisition costs. So if you are investing in properties to flip or wholesale, and they need repairs or renovations before they are in move in condition then you need hard money.

Hard money lenders will lend on the current value or ARV (the value of the property after repairs and renovations.) And you can include renovation costs in the loan amount as long as the total costs don’t exceed the limit. Most lend up to 70%-75% (and of course I’ve heard rumors of some lending even more). So for instance say you have a property under contract for $50,000 and it needs $20,000 in rehab, to get it into move in condition and has an ARV of $100,000. You can go to a hard money lender and get a loan of $70,000 ($50,000 + $20,000) or 70% of the ARV, which is 100% of the acquisition costs meaning you have just completed no money down deal. (And I bet you didn’t think that was possible nowadays)

You have different types of property. Most conventional lenders lend on either commercial or residential, if you find the right hard money lender, you can finance most property types with one lender.

You have a well defined exit strategy. This is the key, make sure you have a well defined exit strategy, sell, refinance etc. Because as I said before hard money loans do not have long terms but they do have high rates. So make sure you have a well defined well timed exit strategy.

Hard money can be easy, once you know what it is and how to use it. Hope this has helped make hard money a little easier for anyone looking for info on hard money.

Amar Brown is the CEO of Gateway Real Estate Inc. a real estate service company located in New York City. His company specializes in creative real estate, mortgages, hard money loans for investors, credit repair and improvement, and consulting.

He is the owner of http://www.GatewayREInc.com and [http://www.Your1stMillion.net] a website which features information and education on wealth building techniques using Real Estate, Stocks, The Internet, Network Marketing (MLM), Mental Preparation and Motivation. He is an author and speaker on the subjects of , Real Estate, Credit Repair, Hard Money, Wealth Building, and Motivation. For info on these subjects or any of his services please contact.

Gateway Real Estate Inc

615 W 164th St

New York, NY 10032

Abrown@GatewayREinc.com

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mortgages

Why Foreclosure Is Often Preferred By The Loan Servicer Instead Of Offering A Loan Modification

Have you ever wondered why a foreclosure occurs when a better solution might have been a modification?  Would you like to read the facts and figures and see how mortgages are bundled, sold and serviced?  You will soon see it is isn’t pretty, we are in the midst of a crisis, and it is likely to get worse before it gets better.  That being said, you can probably guess why-it’s about the money.  It is a little more complex than that-the report is 60 pages-but is explains the incentive and disincentives that are at conflict within the mortgage market today.  Once you understand how all the pieces go together, you can see that something “different” needs to be done.  I am a strong free market believer, but in this case, the government needs to have a mandate and rule that is guided towards keeping people in their homes.  Left to current industry solutions, the mortgage mess will continue to play out and get worse.  If you click on the link below, you will find the free report from the National Consumer Law Center.

http://www.consumerlaw.org/issues/mortgage_servicing/content/Servicer-Report1009.pdf

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mortgages

Bad Credit Mortgage Options

Today you will find that many people are dealing with bad credit. It has been so easy to get credit in past years, and it’s easy to get in over your head. With the current financial crisis, there are many people finding themselves having severe problems. If you need to purchase a home and you have bad credit, then you may be wondering how you can purchase a home. Well, there are some bad credit mortgage options out there that you can consider. With FHA loans, credit restoration, flexible underwriting, and other great credit solutions, there should be a way for you to get the loan that you need to purchase a home of your own, even if you do have less than perfect credit.

Sub Prime Lenders

You will find that there are lenders out there that offer flexible underwriting and who are willing to give mortgages to people who have credit that is less than perfect. These mortgages are usually known as sub prime mortgages. You’ll definitely find that it is much harder to get a mortgage when you have bad credit. However, there are still some options out there today.

After Bankruptcy

If you deal with bankruptcy, more than likely your credit is going to be pretty bad. This is a big credit problem. However, if you do show that you can work on paying them back, you may be able to get FHA financing available in a chapter 13 after 12 months of on time payments. This allows even people who have gone through bankruptcy to work on things so they can get one of the FHA loans that are available, even though their credit may not be very good yet.

Reestablishing Your Credit

Before you are able to get the mortgage that you need, in some cases you may end up needing to reestablish credit before this is possible. There are a variety of things that you can do for credit restoration. This can help to restore and improve your credit so you have better luck finding the financing that you need for your home. There are definitely a variety of different approaches that can be taken to repair and reestablish your credit.

First of all you will want to check out your credit report. Make sure that any problems are removed if they are mistakes. You’ll have to contact the credit reporting agency in order to do this. This can definitely help to improve your credit. Errors are pretty easy to fix up. However, if there are other problems, then you may need to work harder on restoring your credit.

Paying bills on time and working to pay off high interest debt can be a huge help as well. Work on getting out of as much debt as you can. If you are having problems meeting your bills, then consider getting involved in debt consolidation or in credit counseling. Many times you’ll be able to lower interest rates or even the amount that you have to pay. Also, taking out a consolidation loan may be able to help you get your debt under control so you can work on making your credit better.

Getting a Bad Credit Mortgage

In some cases you may still be able to get that mortgage, even with bad credit. However, one thing you need to consider is the price of a mortgage when you have bad credit. You’ll find that people with bad credit usually end up paying interest rates that are much higher. Sometimes there may be origination fees that you’ll end up having to pay as well. This will depend on the points on the loan. If you have one point on the loan, then you’ll have to pay one percentage of the loan. However, those who have very bad credit can pay all the way up to 4-5 points on a loan, which means up to 4-5% of the loan that you need to take out. In some cases a hard money loan may be an option to consider as well. However, it can cost thousands just to even get that loan in the first place.

The Best Option

While you may want to go ahead and take out a mortgage, even with bad credit, you may be better off to wait a bit and work on finding credit solutions that will help you improve your credit score. You can definitely save a whole lot of money if you improve your credit. This way you’ll have more options when you need a mortgage and the mortgage won’t be as costly for you as well. There is less chance of being taken advantage of when you can go with a mortgage for people with good credit. So, if you can wait a bit, take the time to reestablish your credit. Then you’ll have more options and a better chance of getting the mortgage that you need for a home.

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mortgages

Hard Money – What is It?

More than likely you have heard about hard money. However, you may not really be sure what exactly a hard money loan is all about. Well, essentially this is a type of asset based lending in which a person that is borrowing the money gets the funds, but they are secured by the value of a piece of real estate. Usually these loans come with pretty high interest rates, and usually commercial banks are not the ones that are making these loans. You’ll find that hard money is a lot like going with a bridge loan, with similar criteria. However, usually a bridge loan is for investment or commercial properties. Hard money is a bit different because it is a loan that not only is asset based and it includes a very high interested rate, but there many be a financial situation that is quite distressed as well.

Who Finances Hard Money Mortgages?

You may be wondering who the hard money lenders are. Who would want to finance these hard money mortgages? Well, usually you’ll find that these options are provided by private investors, since banks usually will not offer these options. Most of the time, the credit score of the person borrowing doesn’t even matter, since the loan is taken out against the collateral property and its’ value. When the loan is made, usually it is only given for about 65% of the value of the collateral. So, if the property is worth about $200,000, the loan amount would be about $130,000. This way if the borrower does not pay, the hard money lenders will be able to still make money and they will have the extra money to make up for the foreclosure proceedings they will have to go through on the property.

Structures of These Loans

Understanding the structure of this type of a loan can definitely be important. Usually this type of loan is a type of real estate loan that is made against the value for quick sale of the property. Usually the hard money lenders will fun these loans and will be in the first lien position, so that they are the first to end up getting remuneration of the borrower ends up defaulting. If they allow someone else to have the first lien position, this is called a mezzanine loan. The loan to value ratios on these loans is usually somewhere between 60% and 70%. If a lender was structuring the purchase of a piece of real estate, they would probably go for 65% in the hard money loan, 20% of cash or equity from the borrower, and then 15% of a seller carryback loan or another type of loan, such as a mezzanine loan.

History of the Term

You’ll find that the term “hard money” is really only used in the United States as well as Canada. This is where these loans are very common. When it comes to commercial real estate, these types of loans became a last resort option for those who needed capital and they are able to get it against their holdings and the value of them. This type of lending started out in the 1950s; however, in the real estate crash in the 80′s and the crash in the 90s, this industry had some real setbacks. Lower loan to value ratios are now in place since these things have occurred.

Commercial Asset Based Lending

Commercial hard money, which is often known as commercial asset based lending, is much like traditional hard money as well. However, since there is a higher risk, they are usually on the more expensive side. Usually these loans are short term and sometimes are also referred to as bridge financing as well. You will find that the industry moves quite quickly, making it great for people who need to have funding fast. However, the prices of the loans have become more expensive because of this fact.

The Expense of These Loans

The expense of the hard money loans can definitely be steep. They are definitely a whole lot more expensive than sub prime mortgages. Usually there is more risk to them, and the interest rates can be high. Banks don’t determine the interest rates that are paid. They are decided on the availability of the hard money and the current real estate market. Usually they end up ranging between about 12% and 21%. However, in some cases it can go all the way to 25% or even a bit higher. In some cases you could end up paying a penalty fee if you pre pay as well.

Finding a Quality Hard Money Lender

Finding a quality hard money lender to give hard money loans or no-doc/stated loans can be difficult. It’s important that you are careful as you select a lender as well. This market is quite predatory, and the prices go high and sometimes there are lenders that charge very high fees in the beginning as well. It’s usually not a great idea to go with a lender that asks you to offer them high fees up front. Unfair practices that occur should be reported to the attorney general office where you live. These loans can be helpful, but only if you get the right lender, so it’s important that you choose very carefully.

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