Bridge Loans Vs Hard Money Loans

Occasionally people get caught in the middle of investments that need an infusion of cash in a timely manner and traditional financing is not available for one reason or another. This is where a hard money loan or a bridge loan would be the answer and might be worth pursuing.

Bridge loans are a type of hard money loan that is generally used for real estate investments when no other source of income is available. As such, they are offered by private investors and not banks and traditional lenders. Most individuals for example who receive such type of loans apply when they are selling one house and need money now to finance, or move into, a new home, but cannot wait for their original house to sell. Hence, a bridge loan “bridges the gap” between the time that the house sells and the loan can be repaid.

Businesses also consider them during construction projects. A business can apply for a standard loan from a bank, but approval can take up to several months. By procuring a bridge loan from a private investor, the business can continue its project uninterrupted. Herein lies a major difference between a bridge loan and a hard money loan; the former is designed for use and re-payment in a very short period of time, such as a number of months or a year, whereas a regular hard money loan might take longer to pay back.

As such, interest rates are somewhat higher for hard money loans than they would be for traditional loans, and even higher for bridge loans. Although interest rates might be higher for these loans, to correspond to the risk involved for the lender, and for the convenience afforded to the borrower, statistics suggest that higher rates are more of a myth than a reality. For example, lenders have pointed out that, as short-term loans, hard money and bridge loans are almost equal in interest rates to traditional loans when averaged out against the amount of time it takes to pay for them.

In addition, although hard money lenders make it possible for people who might not qualify for traditional loans to receive one by treating their property as equity instead of relying on credit scores, they are also a convenience for people who can qualify for traditional loans. Essentially, the question to ask before deciding on whether to get a hard money or a bridge loan is how long one needs to pay it off.

Hard Money Lender Real Estate – Financing Options For Investors and Borrowers With Bad Credit

Hard money lender real estate loans provide borrowers with poor credit the chance to purchase a home. These types of loans are considerably more expensive than traditional home loans financed through mortgage lenders. This type of financing is intended for interim use while borrowers rebuild or establish a credit history.

Hard money lender real estate financing is also used by investors to purchase commercial properties or realty intended for house flipping. Investors sometimes use this type of financing to buy properties that are not in marketable condition because this type of realty does not qualify for conventional financing through banks.

Hard money loans are referred to as ‘bridge financing’ because they bridge the gap for individuals who do not qualify for funding through a mortgage lender. Bridge loans can be used in addition to conventional loans and are often used with seller carry back financing.

Seller carry back is a lending option that helps individuals buy real estate by combining bridge loans with conventional mortgage loans. The property owner provides a portion of financing for one to two years and the balance is financed through a bank, credit union or mortgage lender.

For example, the Seller lists his property at $250,000 and offers to carry back 40-percent financing, or $100,000. The buyer obtains a conventional home mortgage loan for $150,000. The buyer has two mortgages against the property. The bank carries the first mortgage and the seller carries the second mortgage. Carry back financing is generally limited to 70-percent maximum of the property’s current market value.

Interest rates applied to bridge loans are substantially higher than interest applied to conventional home loans. Private financing interest rates are regulated by state usury laws. On average, bridge loans are charged an interest rate of 11- to 21-percent. At present, Florida has the highest usury rate which is capped at 25-percent.

Seller carry back real estate contracts often include default clauses which allow sellers to increase interest rates if borrowers become delinquent with loan payments or default on the loan and enter into foreclosure. Default interest rates can soar as high as 29-percent. Buyers can determine maximum hard money loan interest rates at UsuryLaw.com.

The amount of interest charged with bridge loans can vary depending on the amount of borrowed funds, as well as the funding source. Private real estate investors generally charge a lower interest rate than investment groups. Hard money loans for residential property typically carry a higher rate of interest than commercial property loans.

Bridge loans sometimes include a prepayment clause, penalizing borrowers who pay loans off early. One primary goal is to refinance hard money loans through a conventional mortgage lender as quickly as possible. A six-month prepayment clause is tolerable, while a two year penalty clause is unacceptable. It is highly recommended to consult with a real estate lawyer before entering into hard money borrowing.

Overall, hard money lender real estate loans are not the preferred method for financing. However, bridge loans allow borrowers with less than perfect credit the opportunity to buy a home and provide funds to investors for residential and commercial investment properties.

Hard Money Loans – A Vital Resource

What is a hard money loan and why do we need one? Hard money cans are driven by equity mortgage loans that are funded by private investors. This eliminates the common and often stressful process of qualification, commitments guidelines, delays bank, mortgage companies and with strict rules and regulations.

The most common situations that a person would need a privately financed loan includes Hard Money: The recent bankruptcies, a balloon payment on a mortgage which is due now, notice of default has been delivered, or bad credit ratings. Many times a borrower can not verify income, tax returns or bank statements to qualify for a loan institution. Hard money loans are often used in emergency situations for people in need of quick cash (private loans can be funded in 5-10 days), and a stranger or non-conforming types of property. This may include mixed-use property, several units, departments or land to name a few.

In today’s economy, private lending business has become a big positive for investors seeking alternative ways to invest their money. These investors are not looking to close or take ownership of the borrower. This is a great misconception that often gives loans Hard money a bad name. Private investors simply want a good return on investment so as to protect using the equity in the property. Most if not all lenders just want the payments made on time, compared to the collection of interest.

To comply with the requirements for a loan of money is a tough process much easier to go through a bank or an institution. Bankruptcy, notice of default, mortgages or Bad credit scores are taken into account, but are not used to qualify or disqualify a potential lender. The loans are basa in private equity versus the appraised value of the property. This is called the loan to value (LTV) ratio. This relationship is the main determining factor in qualifying a borrower of a loan from hard money. Once the LTV has been established under Hard Money guidelines established by a particular lender, the loan can be completed in just 5 days.

Hard money lenders have more freedom to write various types of loans to make their institutional counterparts. Interest rates may vary depending on the profile of borrowers and the value of assets used to secure the loan. The institutions have strict rules and only write loans to a particular specification. With a loan of money can be written with a wide range of terms, determined by the position of capital, credit score and the duration that the loan can be written. If you need some money to build a house, but do not want to take a note of 30 years, a hard money lender can often write loans for as short as 12 months. This kind of freedom to adjust the specifications loan is in the best interest of the borrower. The more options a borrower has, increases the chances of getting the best deal possible.

So why are not more people seeking the money market hard for loans? The stigma of private lenders are predatory in nature is the main reason that more people have not heard or participate in this market for home loans. Recent changes in the law of the State of California has helped to regulate what the brokers can make money in hard loans, helping to control the abusive lending practices. The days of gouging borrowers lenders has come to an end through legislation and regulation. Competition in the market and a greater understanding by the average borrower and broker has also helped to legitimize the Hard Money business.

Today, the hard money market is a vital resource for thousands of people seeking to improve their financial situation, but never thought they could because of a bad credit or financial history. Thousands more also take advantage of the Hard money market due to the speed with which loans can be financed. For those people who seek to make rapid improvements to their homes, pay some old debts credit, or invest in buying a house to sell at a later date, the capacity of hard money lenders to adjust loan programs on the basis a borrower needs is what sets the private lending business, apart from the conventional mortgage business.