By: The i Fund Cities Team
What is so hard about hard money? Well, for most people, the hardest thing about hard money is understanding the different ways in which people in the real estate industry use the terms “Hard Money Lender” and “Hard Money Loan.”
These terms have both a broad definition and a narrow definition. We are here to help sort it out!
THE BROAD DEFINITION
“Hard Money Lender“ = All Non-Bank Lenders
This broader definition of Hard Money Lenders puts all non-bank lenders under one big umbrella, with “Alternative Lenders” (like us), being a subgroup of that larger group. (You can read more about how Alternative Lenders differ from other lenders “Alternative Lenders” here.)
In fact, if you did a Google search for “Hard Money Lenders,” we will come up in your search results. That is because this broad definition of Hard Money Lenders used in real estate describes the big and varied group of lenders that includes everything but the bank.
This large group of all non-bank real estate investment Hard Money (and Alternative Lenders) provides investor-friendly Hard Money funding that offers major advantages over traditional banks.
Hard Money (and Alternative Loans) vs. the Bank
Advantages:
- Hard Money (and Alternative Lenders) can close fast (around 7 to 14 days).
- Hard Money (and Alternative Lenders) do not need the massive amount of paperwork that the bank does.
- Hard Money (and Alternative Lenders) can “think outside the box” in terms of their underwriting.
- Hard Money (and Alternative Lenders) have more funding flexibility than the bank.
- Hard Money (and Alternative Lenders) weight the borrower’s asset and experience more than the borrower’s finances, when reviewing a loan for approval.
- Hard Money (and Alternative Lenders) can step in and fund more unique or problematic projects that banks will not fund.
Disadvantages:
- Banks will usually offer a lower interest rate than Hard Money/Alternative Lenders
Hard Money/Alternative Lenders: What Loan Products Do They/We Offer?
The best Hard Money/Alternative Lendersoffer a wide range of Hard Money Loans including:
- Fix and Flip Loans
- Fix to Rent Loans
- New Construction Loans
- Rental Loans (Short- and long-term properties including single family residential, condos and townhomes)
- Multifamily Bridge Loans
- Multifamily Rental Loans
- Single Family Residential Portfolio Loans
THE NARROW DEFINITION
“Hard Money Lender“ = Individuals or Small Lending Groups
This definition of Hard Money Lenders refers specifically to a lender who is an individual or, more commonly, an entity or group that comprises individual investors and small investor groups. This smaller group of individual/small group Hard Money Cash Lenders are funding structures of investor-pooled capital that are put together specifically to lend you money. (And, not to confuse the matter, but because these types of lenders are often individuals, they are also sometimes called Private Lenders – which is another term for which there are various definitions!)
Because they are small investor groups, they can usually move FAST, FAST, FAST. These types of Hard Money Lenders can often close in less than a week – and sometimes within 24 hours. It can also be easier for investors to get a loan as they can also sometimes do loans with less paperwork than other lenders and can finance borrowers with a lower credit score. In exchange, they generally charge the highest interest rate of any lender and offer lower bank-type leverage than the Hard Money/Alternative lenders we discussed above (which means they require a higher down payment and leave less money in your pocket).
For investors, however, having relationships with these narrowly defined types of Hard Money Lenders can sometimes be deal makers or deal breakers, especially if you have a deal in a hot market that needs to close within a few days.
WHAT YOU SHOULD EXPECT FROM ALL HARD MONEY LENDERS
Some lenders have given Hard Money Lenders a bad name. No matter which type of Hard Money/Alternative Lender you choose for your investor loan financing, you should always expect your lender to:
- Add value to the relationship through their own real estate investing experience.
- Connect you with other industry professionals.
- Share their broad-based knowledge of the real estate market and local market conditions.
- Approach your hard cash deal with reality-based underwriting expertise.
- Have your back throughout your entire investment project.
- Pick up the phone when you call.
- Answer your questions openly and honestly.
- Offer transparency throughout the loan process.
- Use local appraisers for your deals, rather than large national appraisal firms, that may provide appraisals that are inaccurate, and that can slow down deal closings.
Now that you know what a Hard Money Lender is, you may wonder when you should seek a Hard Money Lender, rather than going through the bank. In this article, “50 Real Life Reasons People Choose I Fund Cities’ Alternative Loans Over Bank Loans and Other Lenders,” we have shared actual situations of investors, pulled from our borrower files, who used our type of Hard Money Loan.
If you want more reading on the differences between diverse types of lenders, including more information on Private Real Estate Lending, I recommend this article: The Difference Between Private, Limited, Institutional, Hard Money and Private Money Lenders.
Thanks for reading everyone – and please get in touch if you have questions, or a project that needs Hard Money funding!