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June 18, 2021

What is Hard Money?

Hard money, as it pertains to real estate investing, is money loaned solely to real estate investors because they are based upon the borrower’s credit scores and the property’s value.  

These loans are riskier for the lenders, so they have higher interest rates compared to conventional loans.  Thus, these loans are not for those looking for a primary residence.  Instead, hard money loans are good options for people who cannot get a conventional loan due to income, income to debt ratio or other liquidity factors as these are not examined for such loans.  

Hard money lenders see the after repair value (ARV), whereas conventional lenders will only lend up to a certain percent of the purchase price regardless of the value after remodeling.  Conventional lenders rarely lend money for properties that require repair, but even if they did it would only be for a percentage of the purchase price, not for the after repair value (ARV).  Conversely, a hard money lender will lend money above the purchase price so that part of the repair is covered when the ARV justifies the loan.  This is the power of leverage.  Of course things could happen in the market that cause the value to not be what was anticipated, hence the risk and the higher rates that are charged.  These loans are backed by investors, not banks or credit unions and are usually 12 months, but can be extended to 5 years.  The rates and criteria for hard money loans can vary, whereas traditional loans tend to follow the same criteria and loan at similar interest rates.  Furthermore, in the event that the borrower is unable to pay back the loan, their credit score is not affected with a hard money loan, but they will have to give up their property.  

Hard money loans used to be extremely tedious because the borrower not only had to find lenders, but to also try and get the best rate.  This is one of the reasons Fund.me exists: to maneuver through this maze for borrowers and lenders to create ideal matches for both.

The inability to get funding has been the greatest obstacle for individual real estate investors, especially beginning ones.  At Fund.me we have set out to remove the obstacles so that more individual investors can join the party.  We do this with a very simple platform that only takes about 10 minutes to get prequalified.  If you’re thinking about real estate investing, we’re here to answer any questions you may have and to get you started!

Source:

https://www.investopedia.com/articles/wealth-management/040216/using-hard-money-loans-real-estate-investments.asp

https://newfundingresources.com/2019/01/hard-money-vs-soft-money-for-real-estate-investing/

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