When Should You Use a Hard Money Lender?

A hard money lender is a non-bank lender that lends on any “hard” asset, thus the name, “hard” money loan. But when should you or your client use a hard money lender? Although some hard money lenders will lend on automobiles, planes, artwork, jewelry, and other hard assets, hard money loans are most commonly provided against real estate assets. Homeowners seeking a loan against their homes should not use hard money loans as the loans are high cost and short-term, not to mention, new laws under Dodd Frank prevent hard money lenders from lending on owner occupied properties.

Experienced real estate investors most commonly use hard money lenders to finance their real estate purchases and refinances for speed. In real estate investing, there is a lot of competition for properties at good values. Because hard money lenders can fund such purchases similar to an all cash purchase, these loans give real estate investors an advantage over their competitors. Hard money loans are used by many real estate rehabbers to buy and fix up distressed and vacant properties that banks won’t lend on.

And finally, for commercial real estate investors doing construction or development deals, commercial hard money lenders are like banks. The difference is that banks are not readily financing these types of deals. If the property is not located in a top tier market or needs to be stabilized, forget about bank financing. Commercial hard money lenders, also called bridge lenders, have reasonably priced commercial loans for those borrowers or properties who don’t qualify for bank financing, whatever the reason. Why else would you need a hard money loan? What other reasons would you add to this discussion? Please comment below.

Posted by Corey Curwick Dutton