The History of Hard Money Lending
What Is A Hard Money Loan
When an individual gets a hard money loan they are getting an asset-based loan. The loan is usually given based on the value of some sort of tangible real estate property that the individual owns or is intending to purchase with the loan. The interest rate on a hard money loan is typically higher than a conventional loan. In cities such as San Antonio, Texas where individuals are continually developing real estate or flipping houses, there are plenty of San Antonio hard money lenders. The reason why there are plenty of San Antonio hard money lenders in San Antonio, Texas is that this is one of the places where real estate is big business. The purchase of property or being a property developer is prevalent in many other cities in the United States and San Antonio was just an example used. When an individual or company gets a hard money loan they are getting the loan from a private investor or a company.
Hard Money Loan History
The use of the hard money loan and its industry came about in the late 1950s when the United States did an overhaul of its credit industry. The hard money loan was an alternative method for property owners to obtain capital against the value of the real estate that they owned. The actual term hard money is not used globally but it is only used in the United States and Canada. The hard money loan industry did take a huge loss in the 1980s and 1990s because lenders were overestimating and funding properties over market value. The industry learned from this experience and has now developed consistent loan-to-value rates that will protect the lenders against any market volatility. If a lender is going to take on a high-risk loan they balance the risk by charging extremely high-interest rates.
When hard money lending was not an official industry it still existed when it came to real estate investing. It was just in the form of an individual asking another individual to borrow money to finish a project. Then individuals who did the lending turned into small lending pools and the small lending pools eventually turned into private equity firms. The jobs act in 2012 really changed the game and allowed for individuals to invest in different types of real estate funds. This is also known as crowdfunding. Hard money lending has evolved extremely throughout the years and is now only being done by private-equity firms and major lending companies.
A Few Things That You Should Know About Hard Money Loans
The first thing that individuals and companies should know about hard money loans is that their loans have shorter terms and higher interest rates than a traditional bank loan. Another thing about a hard money loan is that the access to capital is made quickly accessible to the individuals or company who is getting the hard money loan. The quick access to capital is very beneficial to individuals who are into fix and flipping or rehabbing. This allows them to continue their project and complete it in a timely manner for resale. The hard money lender also does not focus on the lenders personal wealth but the focus is on the value of the property. The paperwork and criteria also differ for each company when you are applying for a hard money loan. Some lenders may want to know your credit score, debt to income ratio, or financial history.
When it comes to rehabbers or fix and flippers the criteria is different. Rehabbers have to break down in detail the anticipated renovation cost of the property and the after repair value of the property. This information can make getting a hard money loan easier for rehabbers. Other info the rehabber has to submit before getting a hard money loan is their bank statements for their business, recent tax returns, sales contract for the property, property appraisal, and repair estimates.