If you’re not in the know, hard money is a loan from an individual compared to a bank.  With the economy in shambles and banks not lending money, people are moving towards hard Money lenders to get the cash they need.  To help keep building on the rise, higher populated cities are turning towards hard money and private lenders with increasing numbers.

Private Money is not regulated the same way as bank loans, which is a blessing and a curse.  With some private mortgage brokers you can get a loan without a credit or employment check, which is great if you are self employed or have poor credit.  On the other hand you must be sure you’re working with a reputable broker.

For the following example I’ll use a Hard Money Mortgage Company I’ve worked with called Franklin Karr Mortgage Company.  This is the same process I used when deciding on a Hard Money loan to purchase an investment property in Miami, FL.  After viewing Franklin Karr’s website, I went to the BBB and researched the company.  I saw that he has the highest rating available (A+), no complaints, and also had a good review.  I knew that an A+ rating was a very good sign and urged my to take the next step to contact him.

There is no better way to check your hard money broker’s record then with the Better Business Bureau (BBB).  The first step is to open the Better Business Bureau’s national database at http://www.BBB.org/us .  On this page, towards the center, you’ll see an orange button that says “Check out a Business or Charity”.  Click this button, type in the name of your mortgage broker’s company and click enter.

Below you’ll see a list appear of possible matches.  Click the one that matches the company and a new window will open.  In the center of the page is a clear letter rating, just like your favorite math teacher would give you.  These grades are based on a number of factors, the most important of which is customer satisfaction.  To the right of the letter grade is an explanation of the grade and below that more information on the company.

When choosing a hard money lender always keep the BBB in mind.  A good rating equals out to many factors including proper licensing and government compliance.  If a company doesn’t have a good rating or isn’t listed, they could be a scammer or worse.  Finding a business with an A+ rating, such as Franklin Karr, is a true treat and should be preserved like a golden ring.

Hard Money Miami is a great sourse to find information on Hard Money Lending.  You can find resourses and information to help you get a loan today.

By Justin Kunst

Even though the economy is down money doesn’t just disappear.  It gets funneled to businesses that prosper under certain conditions.  Banks…  are not necessarily one of these.  No wonder they are trying to hold onto their money like a fat kid’s last candy bar.

Do not fear, hard money is here.  Hard money, or private money, is money loaned by an individual instead of an institution.  Many loan takers don’t even realize there may be a private lender living in their own neighborhood.  Private lenders are like you and me, the only difference is they know how to make their money work for them.

Right now hard money lenders are king.  Banks are giving money to less then 1% of applicants right now.  Large cities do not just stand still though, and places like Miami, FL are doing everything they can to keep building.

As an example, I was standing in a print shop when a contractor came in for blueprints.  I happened to mention I have a friend who’s a hard money Florida lender and he literally started drooling!  His face lit up like a Christmas tree and he asked for my friend’s phone number.  This type of situation is not uncommon, builders still want to build and people still want to purchase or refinance real estate in Florida.

What’s the difference between Hard Money & Bank Money?

* Source:  Hard Money Florida & Hard Money Miami

There are many advantages to getting a hard money loan.  One of the only disadvantages is a higher then prime interest rate.  This is because the lender is taking additional risks by not checking your credit or income tax.  How to get around this?  It’s easy; hard money to get started and refinance later.

There is one catch though, private lenders can not advertise on their own.  It is illegal for a private lender to advertise without a mortgage brokers license and brokerage business licensed, so always do private lending though a licensed mortgage brokerage business.  This requires some research because you always want to deal with a reputable source.

In Florida I personally recommend Franklin Karr Mortgage Company.  They are a FL Licensed Mortgage Brokerage Business and Franklin Karr is a FL Licensed Mortgage Broker.  He is also a Better Business Bureau member with an A+ Rating.  They deal only with private lenders and do not check credit.  I have personally worked with Franklin and his company is top notch.  Click here to view his website.

If you want to purchase, refinance, or develop then a hard money lender can help you no matter what the economic condition.  Keep in mind the differences between hard money and bank money and you are set.  If in doubt about your mortgage broker always check with the Better Business Bureau to see a company’s rating.  Feel free to take advantage of Florida real estate because you can now use a hard money mortgage broker like Franklin Karr who makes it easy.

Be sure to Comment below.

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.

Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value ratio is 65–70%. That is, if the property is worth $100,000, the lender would advance $65,000–70,000 against it. This low LTV provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

Loan structure

A hard money loan is a species of real estate loan collateralized against the quick-sale value of the property for which the loan is made. Most lenders fund in the first lien position, meaning that in the event of a default, they are the first creditor to receive remuneration. Occasionally, a lender will subordinate to another first lien position loan; this loan is known as a mezzanine loan or second lien.

Hard money lenders structure loans based on a percentage of the quick-sale value of the subject property. This is called the loan-to-value or LTV ratio and typically hovers between 60 and 70% of the market value of the property. For the purpose of determining an LTV, the word “value” is defined as “today’s purchase price.” This is the amount a lender could reasonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a one- to four-month timeframe. This value differs from a market value appraisal, which assumes an arms-length transaction in which neither buyer nor seller is acting under duress.

Below is an example of how a commercial real estate purchase might be structured by a hard money lender:

65% Hard money (Conforming loan)
20% Borrower equity (cash or additional collateralized real estate)
15% Seller carryback loan or other subordinated (mezzanine) loan

History

Hard Money is a term that is used almost exclusively in the United States and Canada where these types of loans are most common. In commercial real estate, hard money developed as an alternative “last resort” for property owners seeking capital against the value of their holdings. The industry began in the late 1950s when the credit industry in the US underwent drastic changes (see FDIC: Evaluating the Consumer Revolution).

The hard money industry suffered severe setbacks during the real estate crashes of the early 1980s and early 1990s due to lenders overestimating and funding properties at well over market value. Since that time, lower LTV rates have been the norm for hard money lenders seeking to protect themselves against the market’s volatility. Today, high interest rates are the mark of hard money loans as a way to compensate lenders for the considerable risk that they undertake.

Cross collateralizing a hard money loan

In some cases, the low loan-to-values do not facilitate a loan sufficient to pay off the existing mortgage lender, in order for the hard money lender to be in first lien position. Because a security interest in the property is the basis of making a hard money loan, the lender usually always requires first lien position of the property. As an alternative to a potential shortage of equity beneath the minimum lender Loan To Value guidelines, many hard money lender programs will allow a “Cross Lien” on another of the borrowers properties. The cross collateralization of more than one property on a hard money loan transaction, is also referred to as a “blanket mortgage”. Not all homeowners have additional property to cross collateralize. Cross collateralizing or blanket loans are more frequently used with investors on Commercial Hard Money Loan programs.

Commercial hard money

Commercial hard money is similar to traditional hard money, but may sometimes be more expensive as the risk is higher on investment property or non-owner occupied properties. Commercial Hard Money Loans may not be subject to the same consumer loan safeguards as a residential mortgage may be in the state the mortgage is issued. Commercial hard money loans are often short term and therefore interchangeably referred to as bridge loans or bridge financing.

Commercial hard money lender or bridge lender programs

Commercial hard money lender and bridge lender programs are similar to traditional hard money in terms of loan to value requirements and interest rates. A commercial hard money or bridge lender will usually be a strong financial institution that has large deposit reserves and the ability to make a discretionary decision on a non-conforming loan. These borrowers are usually not conforming to the standard Fannie Mae, Freddie Mac or other residential conforming credit guidelines. Since it is a commercial property, they usually do not conform to a standard commercial loan guideline either. The property and or borrowers may be in financial distress, or a commercial property may simply not be complete during construction, have its building permits in place, or simply be in good or marketable conditions for any number of reasons.

Some private investment groups or bridge capital groups will require joint venture or sale-lease back requirements to the riskiest transactions that have a high likelihood of default. Private Investment groups may temporarily offer bridge or hard money, allowing the property owner to buy back the property within only a certain time period. If the property is not bought back by purchase or sold within the time period the commercial hard money lender may keep the property at the agreed to price.

Traditional commercial hard money loan programs are very high risk and have a higher than average default rate. If the property owner defaults on the commercial hard money loan, they may lose the property to foreclosure. If they have exhausted bankruptcy previously, they may not be able to gain assistance through bankruptcy protection. The property owner may have to sell the property in order to satisfy the lien from the commercial hard money lender, and to protect the remaining equity on the property.

Legal and regulatory issues

From inception, the hard money field has always been formally unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money such that operations in several states, including Tennessee and Arkansas are virtually untenable for lending firms.

Commercial lending industry

Thanks to freedom from regulation, the commercial lending industry operates with particular speed and responsiveness, making it an attractive option for those seeking quick funding. However, this has also created a highly predatory lending environment where many companies refer loans to one another (brokering), increasing the price and loan points with each referral.

There is also great concern about the practices of some lending companies in the industry who require upfront payments to investigate loans and refuse to lend on virtually all properties while keeping this fee. Borrowers are advised not to work with hard money lenders who require exorbitant upfront fees prior to funding in order to reduce this risk. If you feel you have been the victim of unfair practices, contact your state’s attorney general office or the office of the state in which the lender operates.

Hard money rate

Hard Money Mortgage loans are generally more expensive than traditional sub-prime mortgages. However all mortgage loans are not necessarily considered to be a high cost mortgage. Generally a hard money loan carries additional risk that a borrower is aware of. Rather than selling the property a borrower will opt to keep the loan and if a lender is willing to assume some of the risk by offering a hard money loan.

Interest rate on hard money

The rate is not dependent on the Bank Rate. It is instead more dependent on the real estate market and availability of hard money credit. As of 2008 and for the past decade hard money has ranged from the mid 12%–21% range^{[citation needed]}. When a borrower defaults they may be charged a higher “Default Rate”. That rate can be as high as allowed by law, which may go up to or around 25%–29%. Some private lenders will collect a prepayment penalty and some will not.

Hard money points

Points on a hard money loan are traditionally 1 to 3 more than a traditional loan, which would amount to 3 to 6 points on the average hard loan. It is very common for a commercial hard money loan to be upwards of four points and as high as 10 points. The reason a borrower would pay that rate is to avoid imminent foreclosure or a “quick sale” of the property. That could amount to as much as a 30% or more discount as is common on short sales. By taking a short term bridge or hard money loan, the borrower often saves equity and extends his time to get his affairs in order to better manage the property.

All hard money borrowers are advised to use a professional real estate attorney to assure the property is not given away by way of a late payment or other default without benefit of traditional procedures that would require a court judgement.