State of hard money rehab loan industry nov 2009
The residential mortgage market continues to limit the availability of mortgage money, real estate investors are turning to hard money lenders to facilitate their needs. In the second half of 2009 Private Lending Groups has witnessed a strong resurgence of investors and borrowers requesting hard money loans and private rehab loans.
A hard money loan is sometimes defined as a loan that mortgage banks won’t do. However in this market even financially strong investors find the quick approval and closing an advantage over banks and traditional lenders. Loans range from borrowers with low FICO scores all the way up to complex commercial deals invoking blanket or bridge financing. The lenders offering these funds are typically private individuals funds put together to fill the void for rehab funding.
With the recent credit tightening of institutional financing and the folding up of over 320 sub prime and prime lending institutions, these types of hard money pools are gaining popularity with real estate investors and mortgage brokers.
These new hard money loans by wealthy investors pay them an above average return on investment of approximately 8-10%. They then loan the money out and keep the origination fees that they collect from the borrower. Additionally, they typically charge their pool of investors a fee for servicing all of the borrower’s monthly payments and collections.
In the past hard money loans carry a negative stigma. This comes from the high fees (points) and high interest rates that nearly all of these lenders charge. Interest rates of twelve percent are a normal starting point for these costly loans. Origination fees are also high, typically ranging from 3-10 points (3-10 percent of the total loan amount borrowed.)
Interestingly enough, for real estate investors, this type of loan is a wonderful thing. Residential investment mortgage loans have nearly dried up while the number of pennies-on-the-dollar foreclosure homes has gone through the roof. In many cases, real estate investors are happy to get financing so they can take advantage of record low real estate prices and purchase real estate investments. With the advent of the hard money lenders comes relaxed guidelines and a more common sense approach to lending.
Hard money lenders typically loan at a maximum of 65% of the purchase price of a home or its appraised value and repairs. For a hard money lender, this gives a tremendous cushion and a firm reassurance that a borrower will pay their monthly hard money mortgage payment. After all, if they don’t pay, the hard money lender will foreclose and own the home at a roughly 35% discount.
There are few other qualifications to a hard money loan besides having “skin in the game” (having the 20-35% to put down on a purchase in a real estate investment) A few lenders require the borrower to have a FICO score of 620+ but other hard money lenders in the business still loan to any good project with a 65% LTV or lower.
If you are looking for a hard money loan on an investment property, a commercial refinance or a commercial transaction your first stop should be to visit our we site at www.ChicagoRehabLoans.com. We provide hard money loans strictly based on LTV (Loan-to-Value Ratio.).
Private Lending Groups assists in the placement of funds for these loans as well as consults investors with diverse yield requirements from all over the US. If you are interested in investing in hard money mortgage, continue on to our corporate website where you can read about investing in hard money.
If you have additional questions regarding hard money investing or obtaining a hard money loan contact us today.
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