Hard loans

Hard loan definition :

Hard loan, is also known as "hard money loan", "equity loan", "trust deed investment loan", "private loan", "private investors loan", and hard money lending, is a loan secured by real estate equity. Hard loans are typically arranged at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution but by instead funded directly by private investors, generally via local areas brokers or hard lenders who specializing in arranging hard money loans.

Comparing hard loans  with  a conventional loans

The 3  main differences between conventional lending and hard money lending are 1. The considerations in underwriting 2. The nature of the lenders/ investors 3. The loan structure rate and terms.

Considerations in underwriting:

While conventional lending underwriting based on credit, income and equity, hard loan are mainly based on equity. As long as there is sufficient protective equity the hard loan  can be done. equity requirements are between 30%-65% depending on the nature of the real estate. See Loan To Value (LTV), hard money rates.  Hard loans are depending mainly on equity but  some investors are also looking at credit and ability to pay. Bad credit will stop a hard loan investor from making the loan but good credit can affect the LTV and the interest rate.  Since hard loans are mainly depending on equity  in most cases it is faster to fund them than a conventional loans.  Since most hard loans are short time and contain balloon payment the exist strategy is a lot more important than in conventional loans that are typically amortized. Hard loan are usually being taken as  bridge loan to acquire or hold real estate until the property is being sold or refinance.      

Lenders/ investors

 Hard money lender of hard loans are private individuals utilizing their own saving, IRAS, family trusts,  etc. to fund the loans directly. Several private investors may bend their money together under one  broker (fractionalized note) to fund a larger size loan or it can be done by a single entity. Conventional loans are arranged by banks utilizing public depositors money and/or  government sponsored funding e.g, FHA, Fannie Mae, SBA etc.

Hard loans can be arrange by brokers who are specializing in arranging private money for real estate acquisitions, holding on or constructions.  It can also funded by direct lenders who have large private funding sources. What is better for the borrower client is depend on the nature of loan and the time frame the borrower have to acquire the loan. At LendingUniverse.com you can find hundreds of  direct hard loans lenders and hard money brokers  competing for your business Start here to get quick quotes for  your loan.

Loan structure and terms;

Conventional loans are normally loan terms 15-40 years with low interest rate. Hard loans are in most cases short terms 1-5 years and higher rates about 3%-8% higher than conventional rates. Hard loans also cost more, typically between  4-8 points (but can be as high  as 15 or even more).  Conventional loans normally stay between 0-2 points.  For More comparisons see: The complete guide to hard money loans and private investors in real estate

 

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