Why You Should Consider a Hard Money Loan
by: Weston A. Jones
January 10, 2003
(i.e. banks, savings and loans, etc.)
fill a need for cheap money. Everyone is glad they
exist and fulfill their need. We would all love to
use them on all our real estate deals. However; there
is a market out there that ILs cannot fund. That is
why Hard Money lending exists. It fulfills a need
that ILs cannot fill due to government regulations,
stricter underwriting guidelines, lower risk profiles,
and etc.
We define it as ‘asset based lending,’ where
the collateral is real estate. Since Hard Money is
more expensive than traditional sources (10%+ interest
rate and 4 points+ in origination fees) borrowers
should have a significant financial upside for using
these sources which out way the cost. Mentor Financial
Group (MFG) can help you decide if Hard Money is right
for you. MFG is commercial private hard money mortgage
specialist. If you are trying to decide whether to
fund your opportunity with a Hard Money Lender here
are the top ten reasons you should consider;
#1 Speed
- Hard Money Lenders (HMLs) can fund in less than
two weeks after receiving all the documentation
while most Institutional Lenders (ILs) can take
60 days or greater if at all.
#2 Low
Documentation Requirements - HMLs still require
some documentation but they fund based on the value
much more than stacks of paperwork required by ILs.
#3 No
Credit Issue - HMLs typically do not require
you to have good credit. At MFG we have worked with
one client and got him funded with a current bankruptcy,
foreclosure and a FICO score of under 500. ILs almost
always require decent credit.
#4 Flexibility
- HMLs give you maximum flexibility in structuring
your loan (i.e. term, interest reserve, draw schedules,
cash out, financing carry, etc.) ILs typically have
much tighter terms.
#5 Gap/Bridge
Financing - HMLs are usually very experienced
real estate investors that understand that projects
do not always follow the well-laid plans. If a gap
in funding exists and the story makes sense HMLs
will typically fund. ILs guidelines most times tie
their hands if borrower get off schedule.
#6 Loans
to Foreign Nationals - HMLs will loan to
foreign nationals, as long as, they are secured
in the property. ILs have difficulty lending to
non-US citizens.
#7 Higher
Risk Profile - HMLs will fund pre-development,
church, non-profit and other riskier loans due to
their understanding of the process and value of
the collateral. ILs typically will not fund pre-development
loans or make loans to institutions which impact
their profile in the community. For example, no
IL wants to foreclose on a church; the publicity
is terrible.
#8 No
Personal Guarantee - Most HMLs do not require
personal guarantees. Loans are made based on the
value. ILs almost always require personal guarantees.
#9 Flexible
LTVs - HMLs decide what Loan to Values (LTVs)
they will accept based on their affinity for the
project, cross collateralization, possible equity
participation, etc. ILs have very strict underwriting
criteria, which turn down loans from the beginning
if the LTV is too high.
#10 Subordinate
Liens - HMLs will make loans in a first,
second, third or lower position, as long as, the
value is there. ILs might do a second, and almost
never a third. They typically want to be in a first
position.
So next time you need a loan keep in mind these 10
reasons to look at Hard Money and call Mentor Financial
Group at 866-Mentor5 (866-636-8675) ask for Weston
Jones. Email me at weston@mentorfg.com or fax me at
866-291-1065.
At Mentor Financial Group (“MFG”), our business is
to fund investments secured by trust deeds on commercial
real estate, including income producing properties
(i.e. apartments, office buildings, etc.), land and
development projects (i.e. construction loans, rehabs,
condo conversions, etc.) and non-owner occupied residential
properties.
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