Understanding What Makes Up A Hard Money Loan

No other type of financing is often as misunderstood as hard money financing. it seems to have often gotten a bad rap - often by those who have never used these types of loans. Some of this stems from borrower's not fully understanding the costs and fees associated with hard money lending. It is important to remember that these loans often have easier credit requirements, high leverage, and are using collateral that is often in unlivable condition. Often times, only a small down payment is required and the lender will finance the purchase and all construction costs. For these reasons, this financing is offered at higher interest rates with "points".

Some common costs associated with a hard money loan include:

• Appraisal Fee
• Points (One point = 1% of the loan amount)
• Title Insurance
• Legal Fee
• Other Lender Fees (sometimes called Application Fee, Commitment Fee, or Processing Fee)

The advantages of using this high leverage financing are often misunderstood. While it is absolutely true that one will make less dollars on a flip in absolute terms, borrowers will increase their returns by many times due to the little amount of cash in the deal. This allows you to complete multiple projects at once, or keep cash available in the bank. Hard money can be a useful tool in any investors tool belt.