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Hard money lenders server a very specific group of people, i.e. real estate investors. Hard money lending is a form of short term lending, which is secured by real estate. Specifically, the people who use hard money loans are typically real estate investors – typically, those who are being denied a traditional loan due to stringent guidelines. 

Hard money lenders exist because they are fast, and offer loans with little to no headaches. Hard money lenders have a streamlined application system. They expect collateral, and don’t look at your credit score. They focus on your experience, rather than your credit worthiness. If you have a checkered financial past, it’ll be easier to obtain financing by using a hard money loan rather than a conventional loan which is granted based on your credit report. Below are situations where hard money lenders fill a void that traditional lenders don’t touch:

Fix and Flip Loans

Most traditional lenders will not give you a loan for a fix and flip project. If the house is in poor condition, or there’s some other abnormality with the house, then a traditional lender will not give you funding. In addition, most fix and flip potential deals “go fast.” The seller is very motivated to sell the property, and will accept the first offer. Traditional lenders take forever, so by the time the loan is approved – you’ve already lost the property since someone paid cash for it. If you have a hard money lender on your side who can close a loan in 5-10 days, you can get the fix and flip property.

People With Bad Credit

Most traditional lenders look at a borrower’s credit report. They verify your income, and investigate past delinquencies. It means that someone with a checked credit history will have a difficult time, and in some cases never get approved. When this happens, your only option is to work with a hard money lender. While the interest rates for a hard money loan are higher than traditional loans – if the deal makes sense, it might make sense to take the money. 

Bridge Funding

Sometimes, your project goes over-budget and as a result you need additional funding. Some traditional lenders will refuse, because the project isn’t completed. While this can be devastating, a hard money lender might be willing to lend you the funds. Hard money lenders are happy to give money to bridge the gap in funding, and can work with you to fill that void. 

Delancey Street only provides hard money loans for real estate investment properties. We do not lend on properties that are owner-occupied. 

No. We don’t look at your credit score. We only care about the investment property. We look at the specifics of your deal, and focus our decision making process on whether or not we think the deal will “work.” Delancey Street is less concerned about your financial history, and more concerned about the deal itself. Typically, we look to see how much money the deal can realistically make – based on data – and try to understand whether or not the real estate investor has the skills to pull it off. 

 

Appraisals are usually required for most loans. It protects everyone involved in the transaction, including both the borrower and lender. It’s one of the last steps in the application and underwriting process. In some cases we may not ask for them if we feel comfortable with the assessment and condition of the property. We usually only ask for an appraisal after the borrower is already approved for their loan, and the deal terms have been accepted. We use the appraisal to make sure the property is in the condition it was represented as. 

The main difference between banks and hard money lenders is the fact hard money lenders are asset baed lenders. They focus on the collateral associated with the loan. In contrast, traditional banks focus on credit and cash flow. It’s super important to remember hard money loans are not good for the long term. The purpose of a hard money loan is to be a short term loan that gets you the property you’re trying to purchase. Hard money lenders focus on short term loans that reap high profits. If you fail to repay the loan, a hard money lender can foreclose on your property in order to repay his/her loan. 

In our experience, even developers with strong finances and access to bank credit choose to use hard money loans. There are many situations where time is of the essence, and a bank will just take too long. For example, if you need immediate funding for a deadline – then a hard money loan makes more sense. If you have an excellent investment opportunity but don’t have the financial strength to get a bank loan – then a hard money loan makes sense. If you have a bank line of credit, but need a larger loan than is allowed under the existing line of credit – then a hard money loan makes sense.

Not at all. While it is true, some borrowers are in distress when looking for hard money – in many cases it’s investors who turn to hard money.

Hard money lenders will lend on both residential and commercial property. Many will NOT lend on owner-occupied residences, due to the laws and restrictions. Examples of commercial properties include, but are not limited to: industrial buildings, shopping centers, office buildings, offices of all sorts, etc. Some hard money lenders may even invest in raw land, which is slated for development. Vacation homes, are considered owner occupied, and thus may not be financeable by hard money loans.

Typical documents you’ll need are a Note, and a Deed of Trust. Depending on the value of the asset, the hard money lender might ask for documentation such as a personal guarantee from the borrower, past tax returns, proof of income, and assurances that the borrower has access to cash to perform whatever renovation the borrower is intending on doing.

The LOI for a hard money loan is to provide a quick way of ensuring both the borrower and hard money lender are in agreement about the terms and conditions. This isn’t legally binding, but it helps create a common set of guidelines that both parties generally adhere and agree to. It prevents miscommunication, or misunderstanding, between the two parties.

Reverse Mergers

Terms

Real estate financing often uses industry jargon and terminology that some applicants are not familiar with. Regardless of the type of loan that you are interested in applying for, you need to have an idea of what loan term you’re looking for. It’s critical, especially for hard money loans – to know what loan term you need to make your business plan work. Generally speaking, loan term is a broad term that describes the length of the loan. It can be used more broadly to describe things like: the loan amount, interest rate, prepayment penalties, etc, but specifically refers to the length of the hard money loan

For example, in traditional residential loans – it’s common for the loan term to be 30 years. That means the lender is giving you 30 years to repay the loan. When it comes to hard money, loan terms are usually shorter. Generally, you can expect a hard money lender to offer a loan term of 6-24 months. This timeframe can range from one lender to the next. In addition, some lenders offer you the privilege of extending your loan after the term is over. Some extensions can last from 3-5 years. 

Most residential loans you’re familiar with are fully amortizing. That means the entire loan balance is repaid over the term length. At the end of the loan term, there is no balloon payment. Hard money loans are different. Most hard money loans are interest only, meaning no principal is repaid during the term of the loan. The hard money lender’s principal is repaid at the end of the loan via a large balloon payment. 

Because hard money loans have a shorter loan term, it’s critical borrowers have an exit strategy before they get a loan. There are many options when it comes to exiting, such as refinancing into a traditional loan, or selling the property. It’s important you’re aware of the loan term/due date, in order to avoid potential issues later. Never accept a hard money loan term without having a calendared business plan in place. 

Hard money lenders will typically never issue loan terms until they’ve reviewed your loan proposal. The lender will ask for things like costs to develop/rehab the property, a timeline for completing the work, and more. Hard money lenders know you can’t obtain long term financing in the middle of a major project, and will customize the loan term around that fact.

It’s a conditional commitment letter, or a good faith letter. It’s a written expression of interest by a hard money lender in making a loan, and an estimate of the eventual terms of the agreement. It is not a commitment letter. It is not legally binding. It is an encouraging statement, and means you’re in the right direction. If a borrower gets a term sheet, it means the hard money lender is willing to work with the borrower pursuant to the terms mentioned in the term sheet.

Considering a hard money loan?

High LTV

We fund loans up to 80-90% LTV. We look at the value of your property, and your overall business plan when deciding whether to fund you.

Fast

We realize deals can disappear if you don’t have fast funding. We promise to treat you like a partner, and work fast to help you get funding.

No $ Limit

We’re a growth focused private money lender. That means we work fast to fund your deal, and there’s no limits on what we can do for you.