Hard Money Lenders: Instant Loans For A Faster Deal
The health of the economy has developed over the last several months. Technically speaking the economic depression might be over; we may be building gross domestic product once again. But, unfortunately, the depression continues. Many banks are very concerned about further damage commercial real estate valuations and rising commercial mortgage delinquencies. They fear that more large percentage write downs of their CRE portfolios may be necessary damaging their legal solvency. Banks on the edge are very skeptical about financing.
Other banks, even healthy ones, together with insurance agencies are looking at their capital as they await the approaching trend of new regulations from Washington. Government bodies are enforcing current regulations more firmly than ever while ensuring even difficult financing policies are on the way. Loan companies won’t lend in earnest until they know what the regulatory environment is going to look like. As the administration encourages lending with their words they are demoralizing it with their heavy handed steps.
For many borrowers the answer has been private lending. Independently funded, referred to as “hard money” commercial mortgage loans are funded by private individuals or privately operated businesses. These special lenders often keep the loans they write in their own portfolios instead of selling them to the secondary mortgage bond market. Private hard money lenders are not controlled by the Federal or state Government so they enjoy much more flexibility and can fund loans much faster than banks can. Multi-million dollar loans can close in less than 10 days if the offer works well with the hard money lender.
The drawback to private lending is that costs and points are much greater than bank rates and that much more collateral is demanded. Private loans almost always top 10% with at least 3 origination points and loan-to-value ratios hardly ever exceed sixty-five percent
The financial meltdown has induced many good loans to be declined by banks. Further, falling property values cause it to be difficult to qualify for conventional financing. Hard money lenders are often able to finance deals that banking institutions are being forced to turn away. Private lending has become an essential component of commercial real estate finance. Borrowers prefer to get a nice, low interest financial loan with great stipulations, but that sort of funding is simply not readily available today. Private hard money lending is now mainstream finance and, for many struggling investors, could be the only-game-in-town.