When investors talk about money, it is considered to either be “hard” or “soft”. Soft money is usually easier to qualify for and obtain and in most cases, the terms are flexible. licensed moneylender is much more restrictive and comes from private individuals who have a lot of money on hand. This is the reason that hard money is sometimes called, “private money.”
There are a number of different advantages when one decides to become a hard money lender. These types of lenders can take advantage of the fact that real estate loans made by banks and brokerage firms are much harder to come by than they used to be. These lending institutions are less apt to lend money for real estate because of the housing industry being in financial dire straits in today’s economic climate.
The people who use money lenders have usually be turned down by a bank and are having a difficult time finding financing elsewhere. While an increased risk that the borrower might default on his or her loan or that he or she will repay it in an untimely manner exists, the lending can still prove to have an impressive return overall.
The person who becomes a hard money lender places the primary focus on the merits of the real estate transaction rather than on the borrower him/herself. This is good because the borrower may have low credit or be a higher risk for other reasons. The security lies in the fact that the lender will be given a property deed and has the same type of insurance on the property that banks have when they make loans.
Hard money loans are known for their fast turn-around. The loans are normally paid back within 8 months to 1 year or even sooner. They are also noted for closing very quickly, in most cases, within 24 hours.
The expenses involved when one becomes a money lender tend to be higher than with traditional loans. This is because they are not founded upon the traditional credit guidelines. The traditional guidelines protect both banks and investors from high default incidences. The person who decides to become a hard money lender might actually not require the same types of income verification ( or any at all) that traditional lenders require. Therefore, they do experience default rates that are considerably higher. As a result, they charge higher interest rates.
Companies and individuals have the option to take a licensed moneylender upon those occasions when they are unable to obtain mortgage financing via traditional means. This can happen when they do not have credit that is acceptable or the vast amount of documentation that is usually required by a traditional financial lending institution.