Is there still a Need for Sub prime Loans.. YES THERE IS!!!

Sub prime residential lending is in vogue again, except that none of the firms funding the loans call the product "sub prime." Oh, and there's one other catch: loan amounts are small, but the profit margins are through the roof. Can you say equity! Take, for example, some of the recent loans made by firms on hardmoneyhunt.com. On average, the notes originated lately have terms of 8.99% and 2 points. Almost does not sound like hard money.

As for the "risk factor" inherit in the loans, the lenders aren't losing much sleep at night. The maximum loan-to-value ratio is 65%, which means if the borrower doesn't pay, the firm can seize the house and sell it for more than just recouping the investment. Let me be quick to point out that although all this sounds nice on paper, this specialized niche isn't poised for a boom any time soon. People are still not always equating hard money with sound investing. It's however a way to make a living while home prices slowly, but surely, improve from the Depression-like crater they've been in the past three years.

The chief problem the industry faces is raising new investor money. All of the active participants in the "new sub prime"-at least the ones I interviewed for this column-are nonbanks that raise money from a mix of wealthy individuals, investment clubs/funds and institutional money. So, why would a somewhat wealthy individual put his money at risk? As more than one of my clients pointed out, "Just look at the yield you can get on CDs these days. It's nonexistent."

Again, the production volume numbers are not overwhelming, but the profit-margin figures look enticing enough that there's been plenty of industry chatter about new entrants." I see other people looking at doing what I'm doing," said one Banker. "But the nice thing about it is that banks won't be getting in this any time soon," which leaves the business wide open for the nonbanks.

All executives interviewed told me the same thing: that demand is strong and the quality of borrowers is exemplary.Also, the loans these companies make aren't always totally residential in nature. "We're making loans to borrowers who can't get credit because they're an investor-or they own too many properties and a bank won't touch them.There's this growing segment out there of people who won't or can't qualify."

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Hard money is easy to find

A whole other world lurks just below the surface of mainstream real-estate finance, a world that most people don't know about. Called “hard money” lending, the field is no longer dominated by the loan sharks who used to feed in these waters. Nevertheless, it remains a largely unregulated segment of the market, so would-be borrowers should swim with extreme caution.

No one knows for sure where the term “hard money” comes from. Some surmise it stems from the so-called “hard guys” who once lent money at extremely high rates and with onerous terms – and threatened to break your neck if you didn't pay it back. Others believe it means this kind of money is hard to come by. Whatever the origin, neither is the case anymore. Nowadays, there are plenty of legitimate lenders in the hard-money sector. So many, in fact, that finding cash at a moment's notice is not difficult at all. Moreover, rates and terms, though still hefty enough to make most borrowers blush, are not nearly as onerous as they once were. “There is a tremendous amount of money available right now,” says hard-money Marketer Michael Goldstein, president of PMB Inc. So much so, he says, that lenders' “yields have been greatly reduced.”

One of the reasons you may never have heard of hard money, or private money, is that it's mainly for folks who usually have nowhere else to turn. This is the sector of the business where even sub-prime lenders who cater to borrowers with poor credit scores fear to tread. Indeed, in this market, practically anything goes, and usually does. Credit score under 500? No problem. Bankruptcy or foreclosure in your credit file? Doesn't matter. Unpaid charge-offs? Not a big deal. Don't – or can't – document your income? So what? Poor work history? Who cares? As long as there is enough equity in the property – that is, as long as the lender could sell the place within a reasonable time for more than enough to cover the loan amount – and you have the ability to pay him back, you can probably find a hard-money lender willing to strike a deal. “The underwriting criteria is totally different” from regular lending, says Steven Sussman of Florida Realty & Management Corp. in Miami. “We look at equity, not the borrower. I don't even know how to read a credit report.”

Typically, a hard-money loan is used as a stopgap measure, giving the borrower enough time to correct a financial problem. Perhaps you need cash to pay off a mortgage in foreclosure, or maybe you're out of work and need some money to hold you over until you find another job. But this type of mortgage isn't limited just to financially troubled borrowers. Hard-money lenders also deal with divorcees who might need cash to buy out their spouses' share of the former family home, heirs who need money to live on until the estate is liquidated, people who need some seed money to start a new business, investors who need money fast to cash in on a great deal or folks who need cash to get their homes ready to sell.

Here's another familiar scenario: The house you've been eyeing for years just came on the market, but you haven't even begun to put your current place up for sale. Still, you need money now. A conventional lender will take weeks, even months, to finalize a loan, but a hard-money lender can put a deal together in just a few days, if not hours. Whatever the reason someone would consider a hard-money lender, the cost can be substantial. Rates can range from 8 percent to 16 percent or higher in some cases, depending on what conventional lenders are charging, and points – the fee lenders charge to make a loan – run from 2 to 8 or more. (A point is 1 percent of the loan amount.) The length of the loans can be as long as five or six years, but just one or two years is typical. And the loan amount will usually be no more than 65 percent of the property's value.

No wonder these are lenders of last resort. And no wonder anyone considering such financing should move slowly. Speed may be of the essence, but take the time to call several lenders, not just one, and consider their terms carefully. The same deal that's on the table today will be on the table tomorrow and the next day. “Even if your back is against the wall, it's still worth calling two or three places and their references,. “There are enough lenders competing for loans that you have plenty of time to do your homework.”

Next, be careful whom you deal with. Mortgage brokers who act as hard-money lenders or as agents of such lenders are usually regulated on the state level, but private individuals often are not. Moreover, federal protections regarding high-interest rate loans don't apply, unless the loan term is at least five years. Check out any potential lender with your local better-business bureau and your state or county consumer-affairs agency. Call your state-banking department to determine if the lender's license is current and that there are no charges pending against the company. Also, determine if your lender is a member of a professional trade organization. Membership is no guarantee that the lender is on the up-and-up, of course. But peer pressure and educational opportunities that come with joining such groups work in your favor. Nonmembers “are less likely to learn what laws apply and less likely to comply,” .

Once you've gotten this far, it's time to consider the loan itself. First, borrow only what you need and not a penny more. Hard-money loans “are nothing more than Band-Aids,” advises most lenders. “So borrow only what you need to get you over your problem.” “Get a small, temporary loan that's just enough to meet your needs,”. “

You can't get into as much trouble with a small loan as you can a big one, and you can always follow up with a larger loan to pay off the smaller one, after you solve your immediate issue.” Try to go with the shortest term possible, too, because the shorter the term, the less expensive the loan. And avoid prepayment penalties that fine you if you pay off the loan early. And finally, never, ever sign over title to your property to the lender. It is the collateral that stands behind the loan, but it should remain yours until you decide to sell. Only then should you give up your rights, not before.

Did that scare you? Those were the days of past. Now days rates are like sub prime were before and most hard money lenders just want to lend you what you need and get paid back. Just check out the lenders on the site.

HardMoneyHunt.com

The most important questions a lender will ask on any hard money loan or private money loan.

Why do you want the loan?If it is a project. How will you collateralize it?

How do you intend to cover the debt service?

What is your exit strategy?

Why do you want the loan?- How much do you need? How much have you already spent on the project and how much more cash do you have to invest?

If it is a project. How will you collateralize it?- The subject property alone may be fine. Or, depending on LTV, other collateral may be necessary. If there is additional collateral, please tell us what it is, estimated value, if there are appraisals and when they were done, along with any current loans. LTV Guideline Raw Land – 25% to 30% LTV (untouched, fully entitled, and construction projects in process fall into this category) Existing Structures – 50% to 60% LTV (65% in extreme cases. Existing structures have certificates of occupancy and either need tenants and TI’s in the case of commercial property, are up, running and generating an income or in the case of residential are ready to move in or have tenants.

How will you cover the debt service? - How much discretionary income (income less expenses) do you, your group or company have to pay the monthly loan cost? For a quick monthly payment estimate, use 12% IO as a basis. Private money generally runs from 9% to 16%, but this is an easy way to estimate a payment without a calculator. For instance: $1,000,000 loan at 12% IO would cost $10,000 per month. Interest Reserves - Many investors will give them, however, even the ones that will, want to know that you can cover the debt without them.

What is your exit strategy? - How long do you need the money and how will you pay it back? The stronger that this statement is, the better. Getting a project built and then looking for conventional financing, while feasible, is not a very strong argument. In some cases that is reality and does make a lot of sense – For instance, you are buying an existing building, doing TI’s and you have tenants ready to move in. Once those tenants are seasoned a conventional lender should replace this take out financing with a conventional loan.

What if your project doesn't conform to the parameters above? Ask the lender to become an investment partner. Joint Venture investors are harder to come by than traditional private money investors but they do make up for insufficiency's if you are lacking initial collateral or the ability to cover debt service. The biggest consideration with JV partners is how much of your project are you willing to give up? That is usually a function of how much cash you have in the project and how much more you have to put in. Unfortunately equal equity does not guarantee an equal share in your project. Different investors have different appetites for what percentage of a project they will want for their investment, based on the risk and the eventual return, but be prepared for an investor wanting a greater percentage of your deal than their money equals.

The Hard Facts - Some of your deals will make sense in the current market and be fundable. Some of you will read this and think it is a bit harsh and unreasonable. Well, allow us to share something with you. There are investors and investment groups that will tell you they can fund your deal whether it meets the parameters above or not. Be careful of the ones that ask you for large fees up front for "due diligence" or "commitment fees" or even high cost appraisals and legal fees in advance of funding your loan. There are firms that make a living from these fees, cherry pick deals and rarely, if ever, fund anything. The only commitment that should be asked from you is a fee agreement and limited exclusivity that says you will pay if and only if the lender actually gets you a loan. You should not be asked for up front fees in most cases. Investors generally fall into 3 categories. Those that charge no up front fees at all, those that charge minimal fees ($2k to $5k) to cover travel expenses and processing and those that charge $10k to $75k or more for all sorts of reasons; some legitimate and some not depending on the size and location of your project. Certain expenses are reasonable; travel costs to visit the site, updated or new appraisals, even lodging, meals and ground transportation if the site of your project is not close to them. If you do not want to pay these fees I suggest getting a lender that is close to the property.

Hope this helps

http://www.hardmoneyhunt.com

Good Information for new Hard Money Borrowers

I have been a Lender and Broker of Hard Money, also known as Private Money, for many years. Over 8,000 brokers have used our services over the years. This article will focus on being a successful Broker of Hard Money. The rules apply for most of the states. If you are looking for a great place to find Hard Money Lenders or Private Money Lenders in any state "click here". There are also advertisers on this page what would like to fund your loans. Note: I am not a real estate attorney and that you should always seek the advice from qualified persons in your state. With that said here are the secrets of the trade. They are not complicated but most Brokers do not follow them. That is why they fail.

Do Hard Money Loans work? Most definitely YES!

Most Important Tip! The one who has the money controls everything. That means not you, the other Broker or your client control the deal. The one who has the money controls the amount to be lent, the loan to value, the commissions to be paid to you and everything else. There are so many good deals out there the lender can easily just move to another loan.

Tip: You must be licensed in the state you are trying to broker in. To many times over the years a deal dies because the broker said that they were licensed to do business and were not. Think you can get around it just one time. Well just remember that if your client needs Hard Money there is probably other problems you do not know about. Many of these loans end up in the hands of attorneys and you will be sued! Not being licensed just means you will loose. Ask your Real Estate Attorney.

Tip: Make sure that the funding source actually has the money. More often than not you think you are dealing with a direct lender and they are only another broker. At times they can be both so ask every time if the loan you are submitting will be funded in-house. And if it won't be request that it NOT be brokered to anyone else.

Tip: Broker Chains usually never work. Nothing worse that finding a funding source and having the fourth broker (who actually has the client contact) demand to much money to make the deal work. Remember the more commissions paid weakens the borrowers position and this always makes the lender nervous. If you do end up in a broker chain make sure that all the Brokers have agreed up front what each will be paid. An even better way is to split the commission as a percent of total commissions. This must be in writing!

Tip: Stay away from Owner Occupied properties. The commissions are capped in most states and more importantly they are more litigious. I call this the "never be on the 6:00 o'clock news". Nothing is worse than helping with a Hard Money loan that goes south and the poor old person is telling the reporter how they never could have serviced the loan in the first place. And that "YOU" lied to get them the loan. Think this doesn't happen...Just watch the news.

Tip: Non-Owner Occupied properties and Commercial properties are the best. These borrowers are considered "sophisticated investors" by the courts. This means that when the loan goes into default you are not kicking someone out of their house the lived in for the past 30 years. Also most property investors are not emotionally attached and if they loose the property, it was a business decision.

Tip: LTV or Loan To Value. LTVs range greatly and change daily according to the kind of property and amount of money the lender has to lend at any one given time. Bottom line is the lower the LTV the happier the lender. As a general rule Single Family Residences are lower than Commercial (more tenants = more stability). Keep your LTVs under 60%!

Tip: Loan amounts are crucial! One of the biggest mistakes I see is the Broker trying to make the 1 million to 50 million dollar deal. Yes they do happen but very very infrequently. At a Hard Money meeting I attended one of the old-timers said to me. I quote "if they cant get the Bank to lend on the project, and it looks like a great loan, you just haven't found the problem yet". Here are the facts: 90% of all Hard Money or Private loans are under $400,000. The reason is simple. Most Hard Money lenders have under $7,000,000 to lend and the smaller the loans the less risk per loan. The other reason is if one of their investors looses money their whole business is at risk.

I hope you liked this article. To find hard money lenders go to http://www.hardmoneyhunt.com

Is Hard Money Dead?

Hard Money is not dead. Hard Money Loans are the new sub-prime loans in the industry. Although many of the older lenders have dead loans on their books their is plenty of new money coming into the marketplace. Investors are still looking for the higher return then money market or bonds will provide. Our site interviews Hard Money Lenders every week to get the pulse on the industry and I am glad to tell you things are just fine. Some are still falling with bad loans on their books but most are growing and have money to lend.

If you need a Hard Money loan visit hardmoneyhunt.com for lenders that have money to lend.

If you are a lender that needs hard money leads visit our lenders page at hardmoneyhunt.com.

Newest Nation Wide Hard Money Lenders

The Link below is the newest list of Hard Money Lenders in our Hard Money Directory. They have money that needs to be spent today. Rates starting from 8%.

Newest Nation Wide Hard Money Lenders

How To Be a Broker of Hard Money or Private Money

I have been a Lender and Broker of Hard Money, also known as Private Money, for many years. Over 8,000 brokers have used our services over the years. This article will focus on being a successful Broker of Hard Money. The rules apply for most of the states. If you are looking for a great place to find Hard Money Lenders or Private Money Lenders in any state "click here". There are also advertisers on this page what would like to fund your loans. Note: I am not a real estate attorney and that you should always seek the advice from qualified persons in your state. With that said here are the secrets of the trade. They are not complicated but most Brokers do not follow them. That is why they fail.

Do Hard Money Loans work? Most definitely YES!

Most Important Tip! The one who has the money controls everything. That means not you, the other Broker or your client control the deal. The one who has the money controls the amount to be lent, the loan to value, the commissions to be paid to you and everything else. There are so many good deals out there the lender can easily just move to another loan.

Tip: You must be licensed in the state you are trying to broker in. To many times over the years a deal dies because the broker said that they were licensed to do business and were not. Think you can get around it just one time. Well just remember that if your client needs Hard Money there is probably other problems you do not know about. Many of these loans end up in the hands of attorneys and you will be sued! Not being licensed just means you will loose. Ask your Real Estate Attorney.

Tip: Make sure that the funding source actually has the money. More often than not you think you are dealing with a direct lender and they are only another broker. At times they can be both so ask every time if the loan you are submitting will be funded in-house. And if it won't be request that it NOT be brokered to anyone else.

Tip: Broker Chains usually never work. Nothing worse that finding a funding source and having the fourth broker (who actually has the client contact) demand to much money to make the deal work. Remember the more commissions paid weakens the borrowers position and this always makes the lender nervous. If you do end up in a broker chain make sure that all the Brokers have agreed up front what each will be paid. An even better way is to split the commission as a percent of total commissions. This must be in writing!

Tip: Stay away from Owner Occupied properties. The commissions are capped in most states and more importantly they are more litigious. I call this the "never be on the 6:00 o'clock news". Nothing is worse than helping with a Hard Money loan that goes south and the poor old person is telling the reporter how they never could have serviced the loan in the first place. And that "YOU" lied to get them the loan. Think this doesn't happen...Just watch the news.

Tip: Non-Owner Occupied properties and Commercial properties are the best. These borrowers are considered "sophisticated investors" by the courts. This means that when the loan goes into default you are not kicking someone out of their house the lived in for the past 30 years. Also most property investors are not emotionally attached and if they loose the property, it was a business decision.

Tip: LTV or Loan To Value. LTVs range greatly and change daily according to the kind of property and amount of money the lender has to lend at any one given time. Bottom line is the lower the LTV the happier the lender. As a general rule Single Family Residences are lower than Commercial (more tenants = more stability). Keep your LTVs under 60%!

Tip: Loan amounts are crucial! One of the biggest mistakes I see is the Broker trying to make the 1 million to 50 million dollar deal. Yes they do happen but very very infrequently. At a Hard Money meeting I attended one of the old-timers said to me. I quote "if they cant get the Bank to lend on the project, and it looks like a great loan, you just haven't found the problem yet". Here are the facts: 90% of all Hard Money or Private loans are under $400,000. The reason is simple. Most Hard Money lenders have under $7,000,000 to lend and the smaller the loans the less risk per loan. The other reason is if one of their investors looses money their whole business is at risk.

I hope you liked this article. To find hard money lenders go to http://www.hardmoneyhunt.com