by Bill Tessar, Civic Financial Services

A ccess to capital is arguably the most important aspect of scaling your real estate business. With institutional capital from Wall Street flowing into the hard money and private money lending space, these loans often provide a more streamlined, professional, and trusted source of financing for today’s real estate investor. So let’s dive in and clear up any misconceptions so you know exactly how hard money loans work, the requirements and costs, and when a hard money loan is right for you.

WHAT IS A HARD MONEY LOAN? Hard money loans aren’t called that because they’re hard to get. Simply put, they are generally short-term (6-24 months), non-recourse loans secured by real estate (the hard asset). Many hard money lenders also offer long-term loans (such as fully amortized 5/1, 7/1, or 10/1 interest-only ARMs) to finance stabilized rental properties. The conventional loan process includes lots of documentation, long wait times, uncertainty and 30-45-day closings. With hard money, you can expect speed, leverage, and a big reduction in documentation needed. Approval is typically determined in just a few days, and close times in 2 weeks or less. In today’s competitive market, hard money delivers significant advantages for real estate investors, especially when competing with multiple offers. HOW TO GET A HARD MONEY LOAN? Conventional mortgage lending assesses debt-to-income ratio, employment history, W-2s and FICO score, and base risk on the creditworthiness of the borrower. The most important criteria for a hard money loan are the property (asset), the borrower’s experience, and a sound plan to pay off the loan (the “exit strategy”). Qualifying for a hard money loan requires demonstrating the ability to pay interest on the loan through stated income and assets, which are typically validated by bank statements. Credit scores and investor experience are taken into consideration; however, these are used to determine pricing rather than qualification. For example, experienced investors or those who have higher FICOs may expect lower rates than first timers.

64 | think realty magazine :: august 2021

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