Hard Money Loans: An Invesment Opportunity

Defining Hard Money Lenders

Hard Money Lenders are private companies or individuals who lend out their capital to fund real estate deals. These loans are called "Hard Money Loans” it can be a significant source of financing for real estate investors needing short-term access to the funds. Hard money loans are given when the borrower (most of the time a contractor or investor) or the property that does not fit the typical bank lending conditions. Hard money loans are secured by the value and scalability of the property so that the borrower’s qualifications and loan-to-value ratios are kept low to protect the lender.

Sacramento Hard Money Lenders

By the definition, bridge loans are considered hard money loans (even when borrowers do have good credit), but not necessarily all hard money loans are bridge loans. Hard money loans are often called short-term loans, but they could be long-term mortgages for people who don’t qualify for more typical Fannie Mae/Freddie Mac/FHA/VA type of loans.

How Hard Money Lending Deals Work:

The lender examines the deals, analyze the properties and qualify the buyers according to their requirements. They charge fees plus the interest. Some lenders are looking for private investors who can provide the capital in exchange for the interest. Depending on the type of loan, investors can be paid interest in a lump sum when their principal is returned at the end of the term, or they simply receive regular monthly payments.

Bridge Loans and other hard money loans can be safer and reliable investments when they are properly vetted and executed. These loans have been offered by mortgage brokerages and even some banks for couple of years, but now it is easier than ever for individuals to “be the bank” and enjoy the benefits of helping qualified borrowers. The key is finding a private lender who will carefully screen borrowers and properties.

While some investors put deals together and lend the money directly, Sacramento Hard Money Lenders recommends using the services of a proven, reputable company who finds, analyzes, and puts together the deals. To find such, get referrals and recommendations, look for references, and ask questions, like:

• What position would your loan be in? (First position is preferred, because it means you are first to get paid in a sale.)
• How much will they lend on the value of the home, or anticipated value, if improvements are made?
• What happens if borrower defaults?
• Can you check references?
• Do they offer “too good to be true” results? (Simply walk away, if they say you can earn 20% per month, 2% per day, or something like this, even if your brother-in-law swears it is real.)

If you are not a professional real estate investor, we don’t suggest for attempting private loans yourself. To loan directly to a homeowner or contractor, you need to have an excellent understanding of real estate law and property values. For instance, if you discover that there are unrecorded liens or notes and your loan is forth in line on an already over-mortgaged property, you’ll end up with nothing.

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