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What Is Commercial Hard Money

Monday, January 13, 2014 - Article by: Winstonrowe - Winston Rowe & Associates - Message

So, what is "hard money"? Most people have heard the term but do not know what it means. Don't be confused by the term Hard Money. The term doesn't mean the money is difficult to obtain because, in reality, Hard Money Loans are some of the the most accessible funds today. Generally, the industry defines "Hard Money" as "unconventional assets based lending" in which the collateral of the loan is real estate. It is considered unconventional because these loans do not meet traditional underwriting criteria of institutional lenders.

A hard money lender is typically a borrower's last resort due to extenuating circumstances and the loan's unconventional characteristics: fast funding timelines, poor credit score, lack of documents from the property, high vacancy rates, etc. Private or hard money loans include real estate funds, pension funds, insurance companies, or simply private individuals looking to put their money to work on commercial and multifamily real estate first trust deeds.

Hard money lenders primarily lend on a short term basis (up to 36 months) to borrowers who use it for a variety of profitable purposes. These opportunities may include the following real estate loan types: bridge financing, refinance, development, acquisition, rehab, 1031 exchange, etc. Since hard money is more expensive than traditional sources, the borrowers should have a considerable upside potential in the transaction to make up for the cost of this loan.

Terms and requirements for a hard money loan will be contingent on each individual transaction. Direct money lenders price all of their loan opportunities exclusive of one another simply because there are no two commercial loans that are exactly the same, and the amount of documentation available from both the borrower and the property often drastically varies.

The funding process generally includes the following steps: Submission - Review - Preliminary Loan Terms Conversations with borrower/referring source - Committee meetings - Loan Terms - Site visit if necessary - Collateral value opinions/appraisals - Title reports/commitments ordered - Due diligence - review of final docs - scheduling of closing - disbursement.

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