Hard Money 101: Everything You Need to Know About Getting Started

Posted by Brent on August 24, 2017

A hard money loan is a legitimate way for business owners or others to obtain needed financing outside of the conventional bank loan process. There are many reasons why this might be necessary; self-employment, previous bankruptcy, less than ideal credit, or other reasons that would cause a rejection of a conventional loan. AHL Hard Money Network looks primarily at the equity existing in real estate, then can quickly offer loans secured by that equity. Our network can avoid many of the pitfalls of conventional loan processing. Let’s review how hard money (sometimes called private money) financing works.

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What is Hard Money?

Hard money is simply financing provided by private investors and secured by the equity in real estate. Loans are typically for periods of five years or less. Most loans require regular payments of interest or interest/principal with a final balloon payment at the end of the agreed period. The amount of the loan is determined from an evaluation of the property used to secure the loan and the equity available from it. The property equity and value are more important than the borrower’s credit rating.

What Can Properties Secure Hard Money Financing?

In reality, almost any property with sufficient equity can be used to secure hard money financing, including:

  • Single family residential
  • Multi-family residential
  • Land
  • Commercial properties
  • Industrial properties

There may be restrictions to offering to finance to properties occupied by the borrower due to Federal regulations. Contact AHL Hard Money Network first to discuss your needs.

How Can I Use My Hard Money Loan?

Hard money loans are most useful when money is needed quickly or for a shorter period than conventional loans will provide. This can include:

  • A short-term construction loan to start a new project
  • Money needed rapidly to secure a new property using equity from an existing one
  • Land loans
  • Fix-up and sell opportunities (sometimes called “flipping”)
  • Financial needs without restrictions due to a lower credit rating, recent foreclosure, or bankruptcy
  • Renovations or upgrades to an existing business

Who Should Take Advantage of Hard Money?

Real estate investors make good use of hard money financing. Real estate moves quickly and opportunities can be lost without the ability to obtain money quickly. Most hard money agreements can be closed in about a week. There is no way you can get that response from conventional lenders. Contractors can use hard money to get construction started while waiting for a conventional building loan. Another reason to use hard money is to get money after you have received a rejection from a conventional bank or lender. There is no reason to start a new conventional loan if you expect the same rejection — get hard money financing quickly and easily.

Why Are Interest Rates Higher For Hard Money?

Interest rates and points for hard money financing will vary greatly all over the country; if you are in Florida you need to work with a local hard money network like AHL who understands the local market. Hard money investors take a higher risk than a conventional bank because they are accepting loans from borrowers who may not qualify for conventional loans. Therefore hard money interest rates will be higher than conventional banks — contact AHL Hard Money Network with your needs and we can discuss the applicable rates and points. We can also discuss your needs and information we will be needing to process your application.

What is Loan to Value Ratio in Hard Money Financing?

Along with equity, hard money investors look at the amount you request for financing relative to the property value used to secure their investment. This is known as the loan to value ratio or LTV. You can expect LTV in the range of 65-75 percent for many hard money investors. You might also hear the term “after repair value” or ATV which is a higher risk for the investors. AHL Hard Money Network can discuss our network’s LTV ratios when you contact us.

We hope you have found this Hard Money 101 summary useful. If you have any questions about hard money financing, or you are ready to start the process of obtaining hard money, contact AHL Hard Money Network today. Our investors are looking for opportunities to put their money to work, and your needs may be a perfect fit for them.

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