Hard Money and Private Money Lenders used for Real Estate Purchases

Published: 19th May 2009
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Using Hard Money in Real Estate Transactions

Definition of a Hard Money Real Estate Loan:

A hard money real estate loan is a short-term loan that is used for the acquisition of both residential and commercial real estate. Also, this type of financing is used with land transaction. Currently, many investors use hard money loans to take down bank owned properties since once can act fast. Normally, a hard money lender will charge 1-3 points at closing. Then, interest rates can range from 15-21%. The term of the loan is typically 6 months or less until investor obtains conventional financing or flips the property to an end buyer.

Who Would Use a Hard Money Loan?

Hard money loans are ideal for investors who either need to take down a property quickly or cannot obtain conventional financing. This type of real estate is not taught at college or at real estate schools. The Real Estate and Beyond Network specializes in hard money loan strategies. Hard money lenders loan on the property itself and the character of the borrower.

Who Are Hard Money Lenders?

Many people connect hard money lenders with American gangster movies. Hard money lenders come from different sources. First, there are traditional hard money lenders that lender other people's money at a higher interest. Then, individuals can be their own hard money bank with the right type of documentation at title to secure their investment. I have been in transactions such as residential homes, multiplexes, commercial, land mobile home parks, hotels, Mexico transactions, and restaurant establishments when it comes to hard money business. Many people are starting to loan their money out at 18% compared to only 2-3% return with CDs or money markets.

What is the typical length of time for a hard money loan backed by real estate?

Personally, it has been my experience that hard money loans last between three to six months until investor obtains conventional financing or sells the property to an end buyer. The typical length of time on commercial deals ranges from two to three years. My goal is to ensure the buyer is in and out of the hard money loan as quickly as possible for the following reasons:

• Ensure conventional financing in place before lending guidelines change

• Turn the hard money as many times as possible for the lender

• Avoid late fees or higher payments for the investor

• Finance into conventional financing before property values drop to change the appraisal at underwriting

The hard money real estate loan lender will conduct a comparative market analysis to feel comfortable loaning the money out. The majority hard money lenders loan up to 65-70% loan to value with a 10-20% down payment plus hold first lien position on the property to protect their interest.

Definition of a Bridge Loan:

A bridge mortgage loan is a loan that bridges the gap between one home and another, without cashing out from the sale of the previous home or property.

Why Use a Bridge Loan?

A bridge mortgage loans is a way for a home buyer to secure financing costs when selling their current home to purchase another home. The bridge mortgage loan provides financing to buy another home before the proceeds of the property listed is sold so the funds become available to be used for the current home purchase and to secure conventional financing. One major risk to this whole equation if the other property does not sell within the expected time frame. Again, it is based upon the equity on one's home to make it successful for both sides.

If, after six months, the old property still is not sold, the borrower will begin making interest-only payments on the loan. The normal terms on this type of loan is one year. Many banks offer this type of service with buyers who have equity in their home and solid buyers with high credit scores at 720 and above.


The Real Estate and Beyond Network is here to serve clients interested in investing in real estate and using the latest creative real estate techniques taught in many workshops offered at a cost or complimentary. We are the Application part of your team. We teach investors to find, fix, finance and fill property with a qualified tenant. We take the guess work out of investing in real estate. Hear the Real Estate and Beyond Radio Show each Saturday from 12-2 Phoenix Time on KKNT 960 AM. Please visit www.deliateam.com to view foreclosure homes or listen to past podcasts.

Harry F. D'Elia III

Real Estate and Beyond Network

CEO and Founder


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