How Have Hard Money Loans Changed?

Hard Money Loans have long been the standard financing for real estate investors and businesspersons to acquire quick short term project funding. Even though this type of financing is expensive in terms of interest rates when compared to conventional financing, the terms and speed of the transaction made it viable for quick turnaround situations such as “flipping” properties or purchasing raw materials.

There have been two important changes to the accessibility of hard money since the economic crash of 2008. One change is the tightening of credit restrictions by all kinds of lenders, on the borrower. In the past some real estate investors who were seeking short term financing would often have had a recent bankruptcy or had received a Notice of Default and were still able to acquire the necessary financing. If this is your situation now, the prospect of acquiring the financing maybe less. The good news is that private money lenders are beginning to look for good loan opportunities again.

The other change is a reduction in loan-to-value (LTV). Many lenders were comfortable with LTV in the 70 –75% range and going to 80% on especially lucrative deals. Most lenders have gone back to a more conservative 60 – 65% LTV. Some hard money lenders have settled on a 65% After Repair Value(ARV) in recent months. That is, they will lend 65% of what the value of the property will be after repairs have been made.

Some Benefits Of Using A Hard Money Loan

Some advantages especially for real estate investors are:

  • Quick turnaround from application to funding, can be as little a few days
  • More emphasis by the lender on the strength of the deal than the individual borrower
  • Credit dings and fair credit scores not as critical as with conventional loans
  • The loan can often be structured to cover the purchase and rehabilitation of the property if the loan amount is within the lender's LTV limits
  • Loan terms can be as short as 6 months up to 2 - 3 years.

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