CAN'T FIND FINANCING? MANY INVESTORS, SOME HOME BUYERS LOOK TO "HARD MONEY" LENDERS
RATES, FEES ARE HIGHER - BUT MONEY AVAILABLE HERE!
For many years, some investors have looked to private investors to finance their purchase, rather than conventional banks and other lending institutions. These "Hard Money" or "Private Money Mortgages" are based primarily on the collateralized value of the property being purchased, rather than the credit characteristics of the borrower. A few affluent buyers consider financing using hard money lenders, as do many multi-property investors.
Rates are typically higher than those for conventional mortgages, and fees are stiffer. Further, most of these private investors require substantial down payments - often exceeding 30% - to assure they would have equity in the property in the event of default.
Typically, hard-money lenders are small groups of investors who pool their capital in search of high returns on their investments. Some firms are larger, such as the Miami FL based Yale Mortgage Corporation. These often rely on bank credit to make their private loans.
Within a real estate investment group we belong to here in Chicago, many small-to-medium investors have used private mortgages to buy distressed properties they intend to fix up and flip for a quick sale, or they use the lender on a property with which they are considering assigning the contract to a third party - the higher-cost loan becomes a fall back. In these situations, carrying costs are not so high if the property gets resold quickly, and the mortgage is paid off. Those buying to hold, however, might encounter far higher carrying costs.
Since most of these loan products are not resold, most hard-money lenders are not subject to heavy regulation and scrutiny brought on by Fannie Mae or Freddie Mac. Such lenders are subject to interest rate caps imposed by individual states, however.
Several hard money lenders have reported that business is growing substantially in the light of mainstream consumer credit market turmoil. Yale Mortgage is saying their loan applications within the past 12 months have increased nearly 30%.
Selecting a quality hard-money lender can be a bit tricky - call us if you would like a referral.
Check out Jeff D. Opdyke's article in the January 13th edition of The Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
