Key Features of Hard Money Loan

While in traditional loans a lender spends considerable amount of money and time on verifying borrower’s credentials, his income, source of income, tax history, credit history etc, in case of hard money loan, lenders avoid the above procedure because the loan amount in hard money loan is based upon the value of the real assets or collateral anchoring the loan, therefore, hard money loan is provided at the least possible time. Hard money loans are also those loans that need to fund quickly and the borrower cannot afford to wait for weeks or months for a traditional lender.

Hard Money Loans: Key Factors

• Fastest Processing
• Not linked with borrowers’ credit record, income level, source etc.
• Can be borrowed even in case of legal & operation issues
• TERMS: Flexible loan terms between 6 months and 20 yrs
• LOAN SIZE: £500,000 to £75 million
• COLLATERAL: Real estate and other fixed or liquid assets
• Special Situation Financing Structure offered for all type of commercial or residential real estate development that cannot be funded by the more traditional lender
  
  

Loan Structure
A hard money loan is provided when the related real estate is offered as collateral and the amount of loan is based on the quick-sale value of the property against which the loan is made. Normally, most lenders fund in the 1st-lien position, meaning that in the event of a default, they are the first creditor to receive remuneration.

The loan amount in case of hard money loan is decided as the a percentage of the quick-sale value of the subjected property. This percentage is called the Loan-to-Value or LTV ratio and typically fluctuates between 60-70% of the value of the property. Value, in this case is determined as 'today's purchase price' This the amount that a lender could reasonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a 1-4 months' time.Therefore, based on the above, a hard money lender, may structure a loan as follows:

• 68% Hard Money Loan
• 18% Borrower equity (cash or additional collateralized real estate)
• 14% Seller carry back loan or other subordinated (mezzanine) loan

Eligibility: Are you eligible for Hard Money Loan?

It has been seen that hard money loan is ideal for borrowers who are unable to borrow from traditional source. Such borrowers are often surrounded by legal & operational issues. In such cases, hard money loan providers solve the problems and get the property suitable for borrowing from traditional lenders. Though the type of property to be considered as collateral depends upon the lender, normally the following income producing and non-income producing properties are considered suitable for collateral:

Income producing Properties

1. Apartments
2. Condo/co-op conversions
3. Retail/shopping/strip centers
4. Mixed use properties
5. Industrial, office buildings
6. Hotels/motels
7. Medical, mobile home parks and restaurants

Non-income producing properties

1. Land acquisition
2. Development and construction
3. Bank workouts, foreclosures and bankruptcies.

LOAN Amount and Interest Rate

Loan size varies from lender to lender but the normal range is £500,000 to £75 million on different categories of properties. Repayment duration is normally in between 6 months to 20 years. Interest rate is based on various factors such as loan amount, repayment duration, risks involved etc but usually remains in the range of 10%-13% with a low fees starting at 2%.

At time, there are few lenders who provide upto 100% loan but very rarely. Typically for a hard money residential loan, borrower’s 15% equity in land or liquid assets is taken as sufficient collateral. Similarly, in case of commercial property 25% equity is usually taken as sufficient security.

Loan Processing

Processing documents for hard money loan is easier and fast compared to documentation for other categories of loans. One can fill out the online application form from the website of different lenders or can phone these lenders’ representatives who provide fast service on call.

To conclude, if you need money in urgency, where you can’t wait for other types of loan due to comparatively lengthy documentation and time required, you should go for hard money loan, which have been devised for such situation. Therefore these are also called special situation financing.