Why Do Real Estate Investors Use Hard Money?
By Pierre Mouchette | Real Property Experts
Hard Money Loans or Rehab Loans are provided by private individuals or hard money lending companies. The characteristics of hard money loans are short-term, high-interest rate, and low LTV (loan to value) ratio. They are called rehab loans because their typical use is to purchase properties for rehab. After the property is fixed, the investor will either sell it or refinance it with conventional financing to keep it as a rental property.
Hard money loans are private mortgage loans secured by private lenders instead of banks, lending institutions, or government agencies. Acquisition and Rehabber loans are asset-based hard money loans with a short-term life (six months to three years), made to ‘professional real estate investors to purchase and rehabilitate real property. This means that the decision to lend is based on the property's value as collateral, not on the borrower’s credit. The security for the loan is enhanced because the loan represents a maximum of 60 to 65% of the property's appraised value.
Why are real estate investors willing to pay high-interest rates and points?
There are many reasons, but most fall into the following categories:
The following items make up the parameters for most lenders
Who Uses Hard Loans?