At Juniper Capital, it is our goal to change the perception of hard money in Seattle, Tacoma, and across the Pacific Northwest. We are a creative, trustworthy, integrity driven private lending partner that comes through for our clients when banks simply can’t. Our experienced team provides immense value to our borrowers throughout the loan process, specializing in commercial loans, construction loans, and more. Give us a call to start the conversation today.
We’re starting the year off by going back to basics – what are hard money loans, and how can they benefit the savvy real estate investor?
It has been said that hard money lending is the world’s second oldest profession. But, despite hard money lending’s lengthy history, there is often confusion – what exactly is a hard money loan? For some, the term “hard money lender” may conjure images of a loan shark in a dark alley – prepared to collect on a debt by any means necessary.
In reality, a hard money loan is a loan underwritten primarily against the value of a “hard” asset (generally real estate), as opposed to a loan primarily underwritten against the creditworthiness of the borrower.
Hard money loans are often characterized as “loans of last resort,” but this is also factually incorrect. Below are some key differences and similarities between private/hard money loans and bank loans.
Differences Between Hard Money & Bank Loans
- Speed – a hard money loan can be closed in a matter of days, while bank loans often take months.
- Flexibility – while most reputable hard money lenders underwrite both the borrower and the collateral property, they are not bound by the stringent requirements that banks are, which allows them to be more flexible and work with borrowers to get a deal done when a bank cannot.
- Loan Term – hard money loans are generally bridge loans of 12-36 months with interest-only payments, which make them more suitable for addressing short-term financing needs.
- Rates – hard money loans are at higher interest rates than bank loans, however, the speed and flexibility they offer may outweigh the cost differences in many cases
Similarities Between Hard Money & Bank Loans
- Loan Documents – hard money loans and bank loans are secured by a deed of trust on real property and a promissory note, with standard clauses and covenants for both the borrower’s and lender’s protection.
- Professionalism – like their banking counterparts, good private capital lenders can be a huge asset to the savvy real estate investor, providing counsel and financing strategies to maximize the investor’s return.
- Underwriting – while hard money lenders often have a much faster, less document intensive underwriting process, the general process for closing a loan with a bank and hard money lender will be the same, including application, borrower financial underwriting, and property appraisal/valuation