There is a lot of misinformation out there on Hard Money lending, and a lot of it comes from the way the loans are marketed by the competition. Many traditional lenders will advise against hard money loans because they are “too expensive” or supposedly have too many fees or additional charges attached. This is far from the reality of the situation.
Typically, hard money loans cost more than traditional loans, however, they typically have shorter terms and the high interest rates encourage the temporary nature of the loan. Ultimately, the lenders know that you need the investment capital for your real estate endeavors, but they also have to protect their assets, so they offer this alternative. Unlike traditional loans, most hard money loans are interest-only, so there is no principal paid down each month. Because of this, monthly payment amounts do not differ all that much from traditional sources.
Fact: Some hard money loans will have interest rates of 10% or more, while others will have rates slightly more comparable to traditional loans in the 6-8% range depending on the exact circumstances that are presented to the lender. If you are working with a reputable hard money lender, they will do their best to find a solution that works for both parties. A reputable lender will disclose all fees up front, and generally do not have any exhorbitant fees or charges even when compared to a traditional lender.
The Price You Pay
What it boils down to is simple: hard money loans can be more expensive than traditional loans, however, they’re also designed to offer fast closings and flexible lending solutions for those who may not be able, nor have the time, to get traditional financing.
Ultimately, you’re going to use the property that you purchase (or currently own) as collateral to for the loan. Lenders will usually give you up to 50-70% of the property value, depending on the property type, to ensure that they maximize their profits while minimizing risk.
One of the bestselling points of a hard money loan, especially regarding the question of how expensive they can be, is that when the property is under renovation or not generating revenue, borrowers make interest-only payments on their loan. The bottom line? You might pay a higher interest rate for this type of loan, but you’ll get much faster access to larger sums of cash, and all without a credit check or other hoops, in most cases.
H&O Capital Funding has helped countless real estate buyers, sellers, lessees and lessors achieve their goals. Our legacy is unwavering commitment to the communities we serve. Houlihan & O’Malley Commercial Real Estate Services specializes in four distinct, yet overlapping, areas of business: Commercial Brokerage services, Private Mortgage services, Appraisal Services and Advisory services.
For more information on loans that we offer, visit our website.