Answer 1: The most common request for a private money loan (often referred to as a hard money loan) is for a loan secured by real estate loan with the loan amount being almost wholly based on the equity in the collateral rather than the credit of the borrower. However, in this day and age private money lenders are often securing their loans with a very wide variety of collateral including business interests, water rights, mineral and gas interests, etc. Hard money loans are typically issued at much higher interest rates than conventional loans and are almost never issued by a commercial bank or other deposit institution. Many hard money mortgages are made by private investors, generally in their local areas.
Typically, and exceptions aside, the average hard money lender will not lend beyond a loan-to-value (“LTV”) of 65%. Most private lenders prefer to maintain a LTV below 60%. Certainly, the lower the LTV ratio the easier it is to get a hard money loan.
Borrowers who have low credit scores or cannot otherwise verify their income generally have little hope of getting a conventional loan even though the collateral might be amazing. Hard money lenders tend to fill the void and allow borrowers the opportunity to purchase assets or refinance other loans in order to fully take advantage of big opportunities. Hard Money is a bridge loan. Borrowers can fix their credit and refinance to a conventional loan in a year or two.
Also, conventional lenders do not loan on certain properties or are not willing to utilize certain collateral to secure a loan and a hard money loan often comes to the rescue in such cases.
Answer 2: Yes. However, all fees are pre-negotiated and are generally paid out of the proceeds of the loan.
Answer 3: Most hard money lenders make pre-qualification simple for all applicants. Generally, if you don’t know how to answer questions on a pre-qualification application then it is best to call one of our representatives to discuss your loan scenario and to figure out what your answers are. Even though each lender has different loan guidelines, almost all will require the same documentation before they are willing to provide a loan so it is best to provide a complete application with associated documents if you can.
Answer 4: Our company and all of the lenders in our network look first to the value of the collateral. From there any hard money lender can quickly determine the lending limits will be based on your ability to repay, debt-ratio, proof of funds for reserves (for purchase transactions), and your long-term goals associated with the collateral.
Answer 5: We try to make sure that a loan closes in as little as 7 to 14 days from the day that all of the due diligence materials have been provided by you. These materials include, but are not limited to, appraisal report orders, open/order escrow and title insurance. On occasion when the borrower or the property have liens, judgments, and/or title issues, a lender require that these items be satisfied first (or can be satisfied upon close of escrow) during the loan process. However, such issues can prolong the loan process thus closing will take longer. We encourage every borrower to be prepared to provide all documentation requested by a lender promptly and to satisfy conditions as quickly as possible to help expedite the closing of their loan.
Answer 6: Generally, no. Many lenders can still fund a loan despite the borrower being in a tight financial situation.
Answer 7: Generally, yes. Many lenders can close loan transactions with tax liens and judgments tied to the property. These are thoroughly discussed with the borrower once the title report is received and reviewed. These liens are generally paid off at closing.
Answer 8: Generally, no. Many lenders will still be able to fund a loan even if the borrower is involved in a short sale, currently in a foreclosure, or has had a previous foreclosure.
Answer 9: Most lenders charge the usual fees such as origination, underwriting and/or processing, inspection (in lieu of an appraisal report), and loan document preparation. There are also be 3rd party fees involved like escrow, closing, title insurance, appraisal report, credit report and other fees. Fees are always disclosed to borrowers when a loan commitment is made and the fees are generally paid from the loan proceeds at closing.
Answer 10: Loan origination fees range from 3% to 10% of the loan amount and interest rates range from 8% to 24%.
Answer 11: Generally brokers are paid at closing by either the borrower or lender or a combination of both. Brokers often set their fees prior to soliciting a lender so they can vary widely; however, many lenders assume that a loan with more than 1% or 2% paid to brokers is very risky because otherwise why would a borrower agree to pay or finance such an immense fee? It is not unusual for lenders to reject loans outright if the broker fees are too high.
Answer 12: Lenders in our network literally lend everywhere in the United States.
Answer 13: Many lenders in our network prefer loans secured by first liens on real estate; however, many will consider almost any collateral. Anything of value can be tied to a loan so feel free to contact one of our representatives at any time to discuss a transaction.
Answer 14: The minimum loan amount is $10,000 and the maximum loan amount is $25,000,000. Although loans larger than $25,000,000 will be considered, such are generally accomplished by multiple lenders within our network and therefore are somewhat more expensive and time consuming to facilitate.
Answer 15: An appraisal is not required. Lenders do not generally accept just any appraisal and will usually check the credibility of any appraiser associated with an appraisal provided by you. If you intend to have your own appraisal completed before soliciting a lender then you would be well advised to have an MAI appraiser perform the appraisal and make sure that he/she is utilized by conventional lenders as well. You should research who your appraiser is before you pay him/her because you can bet that every lender will do its research.
Answer 16: Generally, no. Usually a loan may be paid at any time with no prepayment penalty.
Answer 17: For the most part, yes. Repair money is usually held in escrow and will be released in draws as the renovations are completed. The borrower is responsible for paying their contractors and material men.
Answer 18: Even though you can be pre-approved prior to placing a property under contract, many lenders require a contract be executed prior to moving very far along in the process.
Answer 19: Generally, yes. The borrower can generally agree to finance the points, fees and closing costs. Many lenders require interest payments be made monthly on a monthly basis, but a few will even finance an interest reserve to help a borrower for a few months.
Answer 20: All loans are closed by independent 3rd parties. Almost every lender will prepare the loan documents associated with a loan and provide a copy to a borrower fairly early on in the process so that the documents can be reviewed and negotiated. Final documents are always submitted by a lender’s attorney though.