How Does Hard Money Work?

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I get this question a lot from new investors to seasoned professionals.  If you have never borrowed from a private lender (more commonly known as a hard money lender) you want to know how the process works.  Below is my simplest, most basic explanation of how the process works–or at least how it should work.

Lending Laws Apply to Everybody.

Federal and state lending laws designed to protect borrowers apply to private lenders the same way they apply to institutional lenders.  You as a borrower enjoy the same rights when you borrow from a private lender. This is a welcome piece of news for borrowers who feel they open themselves up to possible exploitation through a hard money loan. My best piece of advice is to confirm that your lender is registered through the NMLS.

Same Forms, Same Disclosures

Because private lenders are regulated by the same lending laws as large financial institutions we use the same forms and disclosures that they do.  We gather the same information about you the borrower and about the property you are seeking to purchase or refinance.  We use the same title and escrow companies.  We use the same hazard insurance carriers. What makes a hard money lender different is the flexibility we offer.  For example we don’t have credit score minimums, we can lend to foreign nationals, we can waive appraisal requirements, we will lend against properties without a certificate of occupancy, and so forth.

The Need for Speed

The characteristic that distinguishes hard money lenders the most from traditional lenders is our ability to close loans quickly.  Our time from application to funding is a matter of days, not weeks.  Although we follow similar processes as institutional lenders we just do it quicker.

And that is how it works.