Hard Money Basics

Hard money lenders are lending companies, or individuals, offering a specialized type of collateral backed loan. They tend to lend short-term capital (also called bridge loans) that provide funding and or cash, based on the value of the collateral. Hard money lenders can and will utilize all types of collateral- cars, boats, land, airplanes, hard assets, paintings, etc. to complete the loan. For the purposes of this page, will narrow to mortgage or home loans. Hard money lenders tend to focus on the value of the collateral rather than the borrower’s ability to repay, FICA score, debt to income balance; instead of based on their own personal income or other assets, as is common with traditional lenders. Hard money lenders typically charge much higher interest rates than banks because they fund deals that do not conform to bank standards such as verification of borrower’s income, assets, or credit score.

Hard money lenders will offer a range of requirements on how much they will lend (loan to value), what types of real estate they will lend on (commercial, residential, multi-family, land) and minimum and maximum loan sizes. Hard money lenders that lend on residential property must be licensed through their state regulatory agency and through the National Mortgage Licensing System (NMLS). Borrowers should verify the lenders license through the NMLS in order to prevent problems at closing, as many states require the lender’s license number to be listed on the loan documents. Not having the license number on the loan documents could prevent the loan from closing.

 

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