Sometimes you need more money than you anticipate while making real estate deals. This is where a hard money loans come in handy. Hard moneylenders are private moneylenders who will do short term financing when its really needed fast and may not qualify for conventional financing.

Hard money loans are called hard money because the terms are strict (hence the term "hard") terms and higher than market interest rates and fees (called points). Hard money lenders will give you access to a loan secured by a collateral which is the real estate. The interest rate varies depending on the marketing environment but usually lies between 14% to 18% annual interest only with loan terms usually 6 to 12 months.

What do hard money lenders look at before making a hard money loan?

The most important thing hard money lenders look at is your plan. You will have to show the hard money lender how you plan to use the money and how you plan on returning them back the money. In order to secure the hard money loan you will have to convince the hard money lender that its a low risk investment for them. Hard money lenders will very carefully analyze your investment plan, your exit strategy, and the details of the property which is going to act as collateral. Hard money lenders may also look at your tax returns, bank statements, your credit history before granting you a hard money loan.

Based on all these factors the hard money lender will make a decision and terms of the loan. Since hard money loans are given on a case by case basis the terms and conditions will always vary from lender to lender and borrower to borrower. It also helps to get favorable terms if you have an existing business relationship with the hard money lender.

In summary, hard money lenders provide faster closings, loan on hard to do properties but in return charge higher interest rate and fees. Real estate investors should make sure that the project is financially feasible after including the cost of borrowing, before undertaking a hard money loan. Understanding when and how to work with hard money lenders and hard money loans will make you more successful real estate investors.