By: Lance T. Denha, Esq.
For those homeowners or commercial real estate investors struggling to bridge the gap to quickly close on, or refinance a property, save real estate from foreclosure, or take advantage of an opportunity of securing financing down the road, a “Bridge Loan” provided by a hard money lender may be a viable choice.
Bridge loans and hard money loans are not standard loans and typically have a higher interest rate. They are short term in nature. Hard money loans typically provide for lower threshold requirements than the conventional bank financed deal. For example, low or no credit scores, or incomplete construction, or property in need of repairs, are just a few areas where a loan would be made from a hard money source.
Hard money loans are typically arranged at a much higher interest rate than a conventional commercial or residential property loan. Hard money loans are issued based on a fraction of the property’s value. The most critical requirement of a hard money loan is equity. All other factors are essentially less important. In the event that you were to default on the loan, the amount of the loan can reach upwards of what the lender can expect to sell the property for, if it needs to do so quickly. This is because hard money lenders structure loans based on a percentage of the quick sale value of the subject property.
Since risky assets are often what secure hard money loans, you can expect to have to pay a higher interest rate. However, despite the apparent ease with which a loan may be obtained, caution should be exercised. This is not a heavily regulated area and many types of personalities populate this particular lending community. Regulation of hard money loans not only differs by state, but also by the particular status and financial situation of the borrower in terms of whether the loan is made to an individual or business. Consumers typically have additional protections afforded to them.
If you need a loan issued quickly for yourself or for your business, obtaining hard money loans can be easier than obtaining a traditional loan, once you find a lender with whom you are comfortable. Rather than responding to the first person or an investment company that approaches you, you should compare multiple hard money loan options.