What is a Hard Money Lender and Where to Find One
What is a Hard Money Lender?
Hard money lenders, otherwise known as bridge lenders or private money lenders, provide short-term financing for both residential and commercial real estate investors.
These lenders are usually private investors or companies who use real estate as collateral to secure the loan.
Using a hard money lender can be advantageous to real estate investors because a hard money loan can be funded in a matter of days and with little paperwork required, whereas a traditional lender like a big bank or credit union can take months to fund a deal and require many forms of documentation.
Also, instead of focusing on your credit score and income, bridge lenders are more interested in the value of the underlying asset.
For these reasons, hard money lenders are capable of funding real estate projects big banks will not finance.
Keep in mind, due to government laws, properties used for hard money loans must not be owner-occupied, otherwise the owner runs the risk of having the note called for violation of the loan agreement.
Hard money loans have higher interest rates than traditional loans, ranging from 7% to 15% depending on the lender and where the property is located.
Generally loans with lower interests rates are given to properties with lower loan to value ratios and in areas where real estate prices do not fluctuate as much, for example in California or New York.
Each of these areas will also have direct hard money lenders that are focused on the local real estate market.
For example, Crescent Lenders is a hard money lender in California, they will have interest rates as low as 7.99% specifically for the Californian market.
Whereas a lender operating in Florida, will likely charge higher interest rates as the prices fluctuate more.
It's also important to note, HMLs (hard money loans) have higher interest rates than traditional loans, and are designed to be used when a real estate investor needs to create leverage.
Because of this, these loans should only be held for a short period of time, generally 6 to 36 months.
Where to Find a Hard Money Lender
Because hard money lending is regulated differently than traditional mortgages it is a bit of a murky world, with some bad actors.
It's not uncommon to hear stories of investors paying hefty upfront fees and never getting their loan funded.
In order to avoid these unscrupulous players, you can find lenders from:
Online Directory Sites
Directory sites, like MoolahList.com, are ideal because they enable borrowers to search via a specific criteria, for example, not all lenders will lend on ground-up construction in Arizona while other lenders will not lend against land outside of California.
These directory sites not only provide borrowers with certified licensed lenders, but will also save you time by linking you with the best lender for your specific needs and protect you from bad actors.
Google generally has great results, however be cautious of a lender with too many good reviews on Google, this should be a red flag.
If the comments seem unnatural and inorganic, move onto the next lender to ensure you are not wasting your time or getting scammed.
Your Local Network
Another great way to find a hard money lender is utilizing your real estate contacts, like your local real estate or mortgage broker.
These business people should have experience dealing with hard money lenders in your area and could help you secure financing for your deal.