How do hard money lenders make money

Hard money is a way to borrow without using traditional mortgage lenders.

When loans need to happen quickly, or when traditional lenders will not approve a loan, hard money may be the only option. Let's review how these loans work.

The Truth about Hard Money Lenders?

Usually, lenders are interested in your credit scores and your income available to repay a loan. Getting approved with a traditional lender is a painfully slow process — even with great credit scores and plenty of income.

How do Credit Cards Make Money? I Found Out the Hard Way - Frugal Rules

Hard money lenders take a different approach: The value of the collateral is more important than your financial position. Hard money has its place for certain borrowers who cannot get traditional funding when they need it. Lenders would rather not take possession of your property, but they don't need to spend as much time going through a loan application with a fine toothed comb — verifying your income, reviewing bank statements, and so on.

Instead, they evaluate each deal individually. Depending on your situation, you may be able to tweak things like the repayment schedules. Most hard money lenders keep loan-to-value ratios LTV ratios relatively low. With ratios this low, lenders know they can sell your property quickly and have a reasonable shot at getting their money back. Hard money loans make the most sense for short term loans.

Hard Money Lenders | Private Money Lenders Directory

Fix-and-flip investors are a good example of hard money users: Hard money is not perfect. It is expensive, so things have to work according to plan for profits to materialize. Hard money works differently from loans you may have used in the past: Learn more about hard money pitfalls.

If you can qualify for other forms of financing, you might come out ahead with those loans. For example, FHA loans allow you to borrow even with less-than-perfect credit. Expect to pay double-digit interest rates on hard money, and you might also pay origination fees of several points to get funded.

To do so, find out who in your area lends money based on collateral. Local real estate agents and real estate investor groups are a good source for names.

Reach out to a few lenders, discuss your needs, and develop a relationship so that you can fund projects quickly and easily when the time comes.

Search the site GO.

Pros and Cons of Hard Money Loans

Updated February 18, What Is Hard Money? Most loans require proof that you can repay them. Hard Money Drawbacks Hard money is not perfect. Get Daily Money Tips to Your Inbox Email Address Sign Up.

There was an error. Please enter a valid email address. Personal Finance Money Hacks Your Career Small Business Investing About Us Advertise Terms of Use Privacy Policy Careers Contact.