Hard Money Lenders – Devil or God

Real estate property dealing returns an outstanding profit. However, the real estate dealers are required to make huge investment. When immediacy takes precedence, the demand for loan can hardly be met by the traditional banking organizations. It is the situation where the hard money lenders play the most important roles.

The hard money lenders are generally called private lenders and they have bad reputation in the market. It is because they demand excessively higher upfront cost either as a down payment or in equity. The annual interest rate is also pegged at higher margin (normally 12% or more) as compared to the conventional loans. As far as the balloon payment is concerned, it is due in only one year or two.

Excessive rate of interest is attached in order to minimize the risk quotient taken by the hard money lenders. This is not enough, there is still much more to digest. Between the collateral and upfront costs, the lenders are allowed to foreclose the properties. Still the hard money lenders are the most preferred choice for the property dealers. Why is it so?

The answer is not hard to find out. The loan processing is done much faster due to the lesser official red tapes. Moreover, credit report checking and income verification are not done by the hard money lenders. So, the borrowers do not have to wait for months to pouch the loan. That is why such loan, in spite of higher upfront costs and exorbitant rate of interest is the only way to meet the immediate demand of the real estate businessmen.

The property value is the only concern for the hard money lenders to decide the volume of the loan to be granted. However, the loan to value ratio hardly exceeds 70% though it is enough for most of the borrowers to buy the new properties or purchase the old ones and do the necessary repairs.

Both the public and private institutions are lending the student loan to help the borrowers color their dreams. We can brag of charging a very low rate of interest so that more and more students can avail the facility of funding the cost of education.