Hard money loan is a loan secured by the value of a real estate property. Hard money loans are typically arranged at much higher interest rates than conventional commercial or residential property loans are almost never issued by a commercial bank or other deposit institution but by private investors, generally via local areas brokers who specializing in arranging hard money loans.
The table below shows the main consideration and differencies between conventional bank financing and hard money private lending financing. Important note: This table only provides very "loose" and general guideline. In reality every loan is different than any other loans. There are many other factors that affect individual loans among them: owner occupancy, property type, property age and condition, location, city and state regulations, co-borrowers, market trends, availability of lenders and other factors.
| FACTOR | CONVENTIONAL LOAN | HARD MONEY LOAN |
|---|---|---|
| CREDIT |
Credit should be good - it will affect loan amount, points and rates.
|
Any credit. In most cases credit will have little to no effect on the loan.
|
| PERSONAL INCOME |
Must be completely verified.
|
Negligible - Very limited verification unless owner occupied.
|
| EQUITY |
0-20% for most cases (LTV can be as high as 100%)
|
Must have at least 35% equity (LTV below 65%).Equity is the most important factor.
|
| VERIFICATION OF OTHER ASSETS |
Must verify some or all assets for approval.
|
Does not need to verify other assets beside the property that will secure the loan.
|
| LOAN PURPOSE |
Must be verified (loan proceeds may have restrictions and limitations).
|
Does not need verification (proceeds can be used for any reason in majority of cases).
|
| TERM |
10-40 years
|
1-5 years
|
| RATE |
5%-8%
|
8%-15%
|
| POINTS / FEES |
0-2
|
2-10
|
| SPEED |
Slow (1-3 months)
|
Fast (1-3 weeks)
|
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