Hard money refers to the funding by an organization or government that is repetitive rather than just a onetime grant like firms paying annual scholarships to post-secondary students or ongoing daycare subsidies. Governments using hard money policy usually backs the value of its currency with tangible, hard and long lasting material that retains its value over a long time period. Governments usually prefer hard money because it provides a predictable stream of funds.
Difference between hard money and soft money
Hard money is usually from political donations that are by the law through the Federal Election Commission while soft money on the other hand is money donated that is donated to political parties in a way that leaves the contribution unregulated.
Who needs hard money?
House flippers and developers normally need hard money to fund deals because they can borrow up to 100% of the purchase price. Hard money lenders requires one to frequently back up the loan with real assets. It is appropriate for individuals who cannot get money but can buy property and quickly turn it into a huge profit. Some investors opt to use this money to get into the property, do some quick fixes so as to raise the value of the property and then get new loans based on the property`s improved value from banks in order to pay off the lenders.
Hard money loans
These are loans given in exchange of money rather than assisting consumers in buying a house. The lenders do not rely on the borrower`s creditworthiness but instead they look at the property value. The lender always wants to ensure that in the event that the borrower defaults there will be sufficient equity in the property above the loan amount. In most circumstances, hard money loans range from 50-70% loan value. These type of loans are considered loans of last resort.
Hard money lenders
These are private companies that lend out capital to fund real estate deals. The loans can be significant sources of finance for real estate investors who are in need of short-term access to funds. The lenders have different rates, fees and terms that one should be fully acquainted with. These fees and rates are typically higher than conventional mortgages; ranging between 8-15% depending on the term length and loan amount. When taking the loans, one pays a fee that ranges between 3-10% of the amount of the loan. The fee is commonly referred to as paying points. The lenders usually lend for only very short terms of between 6-24 months. These type of loans should never be used in place of regular mortgage like for primary or rental unless one has clearly defined the exit strategy that has been put in place to pay the loan within the allocated time.