Explaining The Purpose And Benefits Of A Hard Money Lender
Explaining The Purpose And Benefits Of A Hard Money Lender
A Hard Money Lender (HML) is usually a very wealthy person who lends money to a company, or individual, with a view to making profit on the loan. HMLs often look for borrowers who want to buy real estate with a view to reselling it quickly. Essentially, it is a win-win situation for both the lender and the borrower.
The borrower makes a fast profit on the sale of the property and the HML makes a good profit on the loan. Loans of this nature are usually short-term. The real estate investor needs money to buy the property and to renovate or develop it.
This type of loan differs from what is known as a soft loan which has easy and flexible terms of repayment. A hard money loan involves rigid terms and strict payment schedules that are determined by the moneylender. The criteria to qualify for these loans will depend on each individual moneylender.
He or she will take into account the experience and success of the real estate investor before approving the loan and setting out the terms and conditions of repayment. If the two parties are successful in making a profit from one or two deals, they can build up a solid business relationship and continue to work like this on many other similar ventures.
Usually, the amount of the loan is between 50 and 75 percent of the value of the property including the cost of the renovations. The period of repayment depends on how long it takes to get the property ready for resale. This can vary from six months for quick projects or up to five years for more extensive projects.
For the real estate investor, approaching a HML has many advantages. The main one being that there is no red tape associated with conventional loans. As soon as the loan is approved, the cash is available quickly and the project can get underway. Another big advantage is that money for closing costs can be included in the amount of the loan. Apart from property based projects, HMLs often provide finance for commercial and developmental enterprises.
Some HMLs do not base their decisions on issues such as the borrower's credit rating or other documentation. The viability of the plan and the estimated profits that can be made are the important factors. However, the borrower must be able to provide some form of collateral to back the loan. The collateral is usually the property in question.
A hard money lender may, on the other hand, expect an applicant to complete a credit application and ask for tax returns, bank statements, and other documentation. This is to protect his or her assets. Again, it all depends on the lender's personal criteria. There are no hard and fast rules when it comes to this type of lending. Everything is up to the person providing the finance. The biggest advantage of borrowing cash in this manner is that the applicant does not have to wait 30 days or longer, as is the case with conventional lending institutions.
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