Hard Money Programs

GENERAL INFORMATION

HARD MONEY

 

Have you ever been turned away by a BANK or other Lender on a project that you felt would stand on its own merits, and you were never able to get the deal funded for whatever reason, the bank or someone else gave you ?

 Well this may be your lucky day, our goal is to make the mortgage process a bit easier than most lenders.  Why you ask, is this possible?  Well its because with HARD MONEY LENDERS  the interest rate is often times higher than rates of conventional lenders, and many times the project can be funded in a week or less depending on the loan circumstances and the documentation that is provided to a hard money lender, who sometimes is more liberal in their thinking.  Don’t get me wrong, if the deal is bad, we cannot turn a bad deal into a good deal no matter what ….

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan. Most hard money loans are used for projects lasting from a few months to a few years. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.[1]

The qualifying criteria for a hard money loan varies widely by lender and loan purpose. Credit scores, income and other conventional lending criteria may be analyzed. However, most hard money lenders primarily qualify a loan amount based on the value of the real estate being collateralized. Typically, the biggest loan one can expect would be between 65% and 75% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000 – $70,000 against it. This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property

 

 What is hard money?

Recent economic events internationally and on Wall Street have created a sudden shortage of capital to finance many worthwhile commercial real estate transactions.  This has resulted in many borrowers seeking financing from lenders with privately raised and administered capital – sometimes called “hard-money lenders.”  

These lenders fund a wide range of transactions—

  • from local to national

  • loans from $500,000.+ to under $100 million

  • construction loans to refinancing loans

  • and more

The lenders are very busy and need to review prospective projects quickly and the speedily but carefully price, quote, finalize and close transactions.

List of things to do to apply for a loan with a hard-money lender.

  1. Prepare a short synopsis, not more than two or three pages, which addresses the project and the loan requirements.  Along with this send a brief financial analyses, a map, photos information on the borrower, and other supporting documents 6 to 10 pages.

  2. Describe the transaction:

    • Type of real estate project

    • Location of real estate

    • Type of loan

    • Loan amount

    • Equity available and source

    • Term of loan

    • Exit strategy

    • Amount and types of debt that exist on the property

    • Payoff situation

    • Description of borrower

    • Provide last year’s profit and loss statement showing NOI, as well as this year’s year-to date profit and loss statement

    • Show actual vacancy information clearly, as well as management fees, reserves, for replacement

    • Provide a detailed rent roll, (and list each vacancy), list every tenant lease term, rental rate, etc.

    • Send a copy of the “Opinion of Value” or “Value Reconciliation” page of the appraisal report

    • Include a page or two from the Phase I environmental assessment (including the date, if available.  Also the section showing the name of the firm that carried out the study and the date of the report.

    • Send a copy of the local town’s zoning laws, permits, and other approvals, if project is  to-be-built

    • A few color photographs, as well as a locator map and a 8 1/2 x 11 site plan

  3. Expect to invest between 15% and 25% in cash (or legitimate equity in the property’s value if the property has already been acquired.)  You have heard, often enough that there are no more no-cash deals.  This is particularly true in the recent economic climate.

  4. You can expect the lender to recognize an appraised value that is significantly higher than the price you have recently paid for a property, if, and only if, you have successfully completed a significant number of bureaucratic accomplishments since the purchase date ( such as obtaining full entitlement), have newly negotiated signed leases, or have physically improved the property and can prove it.