This is a question we often get from people who have never borrowed hard money before. As a hard money lender, we care deeply about making sure a hard money loan is truly what you need. If we don’t think a hard money loan is the best option, or if we think you’re a great candidate for traditional lenders – then we’ll tell you that upfront. You deserve the opportunity to succeed – and us being honest is important.
To answer the question: yes, hard money lender’s charge interest monthly.
Before you run off and get a hard money loan, though, here are somethings you should understand. These types of loans are the lifeline of projects that have a balance sheet, real assets, and personal guarantees, in order to create value which is being pledged to the transaction. In many projects, the main person running it runs out of money, doesn’t have funds to finish the project, and wants to utilize the equity in his/her existing assets – to get financing for the incomplete project.
There’s a number of reasons why someone might need capital. Bottom line, if you are eligible for traditional financing for your project, then you should turn to it first. Only go to hard money after you’ve exhausted all your other options. There are many advantages and disadvantages to using hard money and bridge financing. You need to make sure the funding matches the needs of your project.
Typically, hard money lenders have the following basic guidelines. Each lender is different, but when it comes to interest payments, etc, here are some basics:
Rates – 6 to 20%
Terms – 1 to 3 years
Points-in: 0-300 BPS
Points-out: 0-200 BPS
The key to getting a hard money deal closed is getting through the underwriting process. Hard money gives you leverage – make sure you need it before trying to get it. You can use hard money loans for things like hotels, multifamily, office, mixed-use, industrial, retail, student housing, raw land, and other real estate.
Hard money loans are simple transactions when it comes to LTV. Lenders will give you a loan up to a 70-80% of LTV. Lenders look at your ability to repay the loan – but also, more importantly, look at the value of the asset. Loans over 60% LTV are considered risky by lenders, and as a result you should be able to substantiate why your project deserves the funding.
Having a clear exit strategy is critical. Any hard money lender will require one, in order to understand how his/her principal will get paid back eventually. The higher the LTV, the more complicated and risky the deal is for a potential lender. As a result, you should expect higher interest – commensurate to the risk.