What is Hard Money Lending?
A "hard money loan" is generally a loan with the emphasis on the
value of the real estate rather that the credit worthiness and
credit score of the borrower. The strength of the collateral is
generally more important that the qualifications of the borrower
(though both are always considered).
Private money borrowers are, most often, solid individuals or
businesses that have circumstances or opportunities that do not fit
well into the rigid structures of institutional lending, and require
speed or flexibility unavailable through more conventional means.
Example:
An investor finds a house that he wants to finance and needs a loan. The house can be purchased for $50,000.00. The investor prepares a cost to cure that equals $15,000.00. Great Plains Funding hires an appraiser to appraise the property in its present state if the repairs were completed in a workmanship manner. The appraiser determines that the house would have an estimated repaired value of $100,000.00.
In the event that the loan is for 70%, the investor would not need to come up with any funds at closing.The $15,000 for repair costs are held in escrow and a draw is only made when it has been certified by Great Plains Funding's inspector that the work has been completed. The investor is charged for each inspection and a draw. The investor must pay Great Plains Funding in advance for an "after repaired value" appraisal. If the investor is a business entity the loan would need to be personally guaranteed by principals. The loan would be secured by first mortgage or deed of trust. No second position liens.
The investor's point of view is as follows:
1. Deliver to great Plains Funding.
A. A loan application.
B. $450 for credit report and appraisal.
C. Repair estimates and detail of needed repairs.
D. Executed purchase agreement.
2. Get response from Great Plains Funding on initial review of
documents submitted and possible approval.
3. If approved, loan documents sent to Title Company.
4. Proof of insurance provided to Great Plains Funding at
closing showing it as
payee.
5. At closing the loan is funded by Great Plains Funding.
6. Receives invoice for monthly interest during term of loan.
7. Repairs and sells property and pays off loan.