In the world of finance, you’ll find two terms associated with lending: hard money lending and soft money lending. Soft money loans are those with variable payment program plans and borrower-friendly conditions; while hard money loans are those with relatively strict terms and payment schedule plans, and everything is totally up to the financial institution.
Hard money lending is usually offered by both private and financial lenders. Private lenders are well-to-do individuals who choose to make some profit by lending their money to people they consider good payers/borrowers. Commercial lenders, on the flip side, are financing establishments which lend money as their business to people who wish to get a loan. It is usually real estate investors who need this sort of loan because in their case, it becomes a win-win situation. The loan providers are certain to get their profit from the money they put out, and the borrower will also gain a quick profit from the property they decided to invest on, while being able to fulfill the payment schedule and terms of the lender. So basically, although the terms and payment plan may be fairly strict and rigid, there are still many who choose this mainly because this can be a quick solution to receive money. The instant your loan gets approved, you get the money immediately.
Since with hard money lending most of them are private lenders, they will have their own particular requirements for the loan’s approval. The real estate investor’s experience generally is a key aspect impinging on the approval of the loan, however there are other criteria also. That is the reason why a good rapport with lenders is vital for real estate investors. Developing a strong relationship with them is possible because private hard money lenders are individuals, and as long as they’ve got a good relationship, the borrower knows that once they see a good chance, he or she will have the required funds. However, for those new to real estate investing, locating these individuals might not be easy to accomplish; although, they are usually looking for new opportunities to loan their money. Hence, if you’re a newbie, keep your eyes and ears open for these.
Just to have an idea concerning hard money lending, these are normally short-term loans starting from six months to five years, depending on the terms of the loan provider; as well as the regulations used for every loan is normally from one half to around three quarters of the property value along with the post maintenance. In terms of the points, it will be varying between two to ten on top of the loan’s sum. Yet again, all these conditions depends on the lender – it’s his or her call. Nevertheless, it is known that when hard money loans are usually financed by private sources (individuals), the terms usually are sterner than commercial lenders. At the same time, once the investor has found the right financial institution for his needs and vice versa, then hard money lending is certainly advantageous for both parties.