April 2, 2017 Carol Bernardes

What, Exactly, is a True Hard Money Loan?

hard money

If you are new to real estate investing, or even if you have been in the game for a while, you might not know what the term “hard money” means. To put it simply, hard money is asset-based funding that is lent to real estate investors by Hard Money Lenders (HML’s) who specialize in that type of loans. “Asset-based” means that any funds lent are secured, or backed, by real property – which means that if you default on your loan, your lender has the right to seize the collateral property you backed the loan with to recoup their losses (usually the property you are seeking funding for).

Hard money loans are sought out for projects that may last only a few months (think: flipping properties) up to a few years (think: commercial or rental properties) and can often be procured within just a few days as opposed to the lengthy timeframe of 30-90 days conventional loans can take. One main advantage to hard money loans is that they are not always based on the requestor’s credit score or creditworthiness.

Instead, if the HML believes the requestor has a good property in their sights, the HML can give the green light for the loan directly – which cuts out processing teams and underwriters.

HML’s are quite often funded by private investors or loan companies who are more willing to take the high risks presented by investing in your real estate endeavors than typical conventional loan institutions or banks. Generally speaking, real estate investors have historically had a much harder time securing loans for their use through banks and mortgage lenders than have traditional mortgage seekers. It is not uncommon for HML’s to fund loans for projects that have been turned down by several conventional lending banks.

Although hard money loans are backed by real property, interest rates tend to be slightly higher than those of conventional mortgage loans. Understandably, the risks assumed by HML’s in funding a real estate investor are also higher than a loan requested for somebody who intends to use their property as their primary residence, as the likelihood of failure on the developer’s part is a sad reality for many. NSB’s Interest rates are based on the perceived risk. Points typically range between 2%-4% of the total amount funded.

NSB will lend up to 65% on a true hard money “No Doc” loan (Not to be confused with a Soft Money Loan which is a higher LTV) of the property’s current value. 

Of important note, is that NSB Financing will not lend on owner-occupied residential properties due to added regulations that make the process more difficult and time consuming – but there are a few out there who are willing to work with a borrower and navigate those muddy waters, so don’t lose hope.

At this point, you should have a basic understanding about hard money loans and lenders. Now get out there and start putting their money to work for you.

Our team is composed of highly trained and experienced people, who will help you, achieve your lending goals.

It’s time for you to be part of our team and start thinking ahead. Contact us today at [email protected]