Hard money is a loan that consists of rates and terms that are higher than conventional loans from banks and savings & loan associations, thus harder terms. They are generally short-term and usually aid the borrower during a bridge term until conventional, more favorable terms can be obtained.
The reason hard money lenders charge more for their loans is because they need to achieve a certain rate of return, since their loans are usually for 24 months or less. Also, the loans they offer are usually higher risk situations -- very low credit scores, difficult properties to sell, such as gas stations, or the situation has inherent difficulties that conventional lenders will not underwrite, in other words you don't qualify for a conventional bank loan.
Hard money lenders typically will only loan a maximum of 75% loan-to-value. Rates range from 9% APR to 15%APR, points charged are from 4% to 10%, term of 1 month to 36 months, interest only, usually no prepayment penalty.
While these terms are steep, usually borrowers are only in the loan for 6 to 9 months before they refinance, so they won't be paying the full 9% to 15% APR rate if in the loan for a full year. This allows the borrower time to correct issues that will allow them to qualify for a conventional loan.
If you would like to know more about this issue please visity our website below or call me at 877-660-2895. Our website addresses hard money loans, as well as our blog site: http://commercialfunds.wordpress.com/
Sincerely, Jim McCune, Managing Director, Spectracom Holdings -- A Commercial Real Estate Mortgage Brokerage Firm
Apr 23, 2009