Hard Money Lending Information
Homeowners in a foreclosure sometimes hear the words hard money.
Here is what that kind of loan is, how the terms work, and what to ask before you sign.
Questions? Call 516-499-1731.
What a hard money loan is
A hard money loan is a short-term loan secured by real estate, made by a private lender or investment fund rather than a bank.
The decision turns mainly on the property and its equity, not credit score and income. That is why they close quickly, and why they cost more.
Equity is what the property is worth minus what is owed on it. A balloon payment is one large final payment that ends the loan.
How hard money terms work
Typical patterns, not quotes. Your own terms are in the loan papers you are handed.
- Short term. Often several months to a few years.
- Interest-only payments, with the full principal due at the end as a balloon payment.
- Higher interest rates than a conventional mortgage, because the lender takes more risk.
- Points paid at closing: a percentage of the loan amount, as an origination fee.
- Loan-to-value limits. Lenders lend against a fraction of the property's value, so meaningful equity is usually required.
- Secured by the property. If the loan is not repaid, the lender can foreclose.
The risk in the balloon payment
A hard money loan replaces one secured debt with a more expensive secured debt that comes due sooner.
It makes sense only with a specific plan to repay or refinance before the balloon payment: a sale, a refinance you are likely to qualify for, or a known sum on a known date.
“Something will work out by then” is not a plan.
If the balloon payment cannot be met, the lender can foreclose, and there is less equity left than at the start.
Questions to ask any hard money lender
Nine of them. Ask every one, write down the answers, then ask for them in writing.
- What is the interest rate, and the annual percentage rate?
- How many points, and every other fee, in writing?
- What is the term, and what date is the balloon payment due?
- Is there a prepayment penalty?
- What is the loan-to-value, and what valuation are you using?
- What are the default interest rates and late charges?
- Am I personally liable, or is the loan secured by the property only?
- Are you licensed in the property's state, and what is your license number?
- Can I see every page of the loan documents before I commit?
If a question is answered with “we will sort that out at closing”, treat that as the answer.
Take those documents to an attorney before signing. Not after.
Research your property before you borrow
A hard money lender lends against your property, so what is recorded against it matters: the mortgage, liens, judgments and any foreclosure case.
The Homeowner Research Document gives you that record first: every filing on your property, connected, dated and counted, with the data from homes like yours and alerts when anything changes.
To see what a proposed loan would cost, use the hard money calculator.
Prime Real Estate Consultants is not a lender or a mortgage broker. We do not arrange loans, and no lender pays us.
Talk to a person.
Call 516-499-1731, Monday through Friday, 9:00 AM to 6:00 PM. Saturday appointments are available on request. If we are with another client, leave a message with your name, your phone number, and the county your property is in, and we will call you back.
Prime Real Estate Consultants
70 Sunrise Highway, Suite 500, Valley Stream, NY 11581
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| Monday to Friday | 9:00 AM to 6:00 PM |
|---|---|
| Saturday | By appointment only |
| Sunday | Closed |
Free help is also available.
You do not have to pay anyone for help with a foreclosure. HUD-approved housing counseling agencies give free counseling nationwide. Call 1-800-569-4287 or visit hud.gov. Many states and counties also run free foreclosure prevention programs. We want you to know about them, whether or not you ever hire us.
If you have a sale date or a court date coming up, call a licensed attorney today.
We are not a law firm.
Prime Real Estate Consultants is a property research and consulting business. We do not practice law or represent anyone, and nothing on this site is legal, tax or financial advice. Contacting us or buying a service does not create an attorney-client relationship.