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A buddy of mine wrote this article to help educate people on loan options available to residential/commercial customers, especially "hard money" loans, which may be a new option to some people. This is what his firm provides, so he is in a good position to provide some insight, especially on how to spot a scam.

He is open to providing free friendly advice for related issues; see contact info at the bottom of the article.

By Tom @ Fclenders:

"
In this article, I will give a brief introduction to hard money loans and how they work.
What is a hard money loan?

A hard money loan is a short-term, high interest rate alternative to a conventional mortgage. Hard money rates range from 12 to 16 percent, and the terms go from six months to five years. These loans are secured by a first lien on real estate. The loan amount is determined by the value of the underlying collateral. Depending on the strength of the borrower and the quality of the collateral, the loan can range from 50% to 70% loan to value (LTV).

Why use a hard money loan?

Unlike conventional loans, hard money loans can close quickly, giving the borrower immediate access to capital. Real estate investors working on time sensitive deals cannot afford to wait a month to obtain funding.

This loan also gives owners a chance to quickly take cash out of the equity in their property. This allows them to quickly cover unexpected expenses like legal fees or medical bills.

Many borrowers also seek out hard money because their credit does not allow them to get a loan from a bank. Hard money lenders are not concerned with credit. Instead, they focus on the borrower's liquid assets and the quality of the underlying collateral. Most private lenders are also real estate investors, and don't mind taking over the property if the borrower defaults.

Do I qualify for a hard money loan?

Below are some general guidelines on what hard money lenders are looking for:

- If residential, property is not occupied by the owner.
- If it's a refinance, there is equity in the property.
- If it's a purchase, the borrower is putting at least 15% down.
- The borrower is not in bankruptcy or foreclosure.
- The borrower has a clear exit on how you will repay the loan.

What are the dangers of hard money loans?

In today's economy, there are companies that try to take advantage of the grim situation many borrowers find themselves in. Their scam is simple: They claim they will be able to provide financing, but only after the borrowers pays them up-front fees. Once they have the borrower's money, they decline the loan because of the additional risks they found when they did their due diligence. The fees can be as high as $200,000.

Problem is, almost all legitimate private lenders have these fees as well, making it very difficult to tell who is real and who is a fraud.

Here are three warning signs that your "lender" may just be after your cash:

1. They give you a term sheet, or a commitment letter, without extensive pre-qualification. Legitimate lenders do most of their underwriting before requesting any upfront fees, and want to review a number of documents before issuing a commitment letter.

2. They don't ask the right questions during the interview. A legitimate lender will want to know how you will pay them back, what you need the money for, and what kind of monthly payments you can tolerate. They will pick your scenario apart and ask uncomfortable questions. A fee grabber will make everything seem great and rosy, just to reach a certain comfort level and take your money. If all you hear is "yes" from your prospective lender, treat it as a warning sign.

3. The upfront fees are unreasonably high. For serious lenders, due diligence fees exist to cover their expenses after they pre-qualify the borrower. These expenses include travel costs, legal fees, appraisal/engineer inspection fees, as well as title work. They will range from $500 for simple residential deals to $30,000 for large and complex commercial deals. A credible lender can provide a cost breakdown for these fees, and even let the borrower pay for the appraisal, engineer, and environmental directly.

I hope you find this information helpful. It serves only as a brief overview of this financial product, as there is much more to hard money loans than discussed here. Feel free to contact me if you have any questions.

"

Source / More info: http://fclenders.com/education.html
 

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The type of business you're in makes me think of only one thing . Loansharking ! I have a loan just like this . And my interest rate is 4% . I can get at money in less than a week . And cost me $125.00 to set it up . The amount available is $200,000 .
 

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The type of business you're in makes me think of only one thing . Loansharking ! I have a loan just like this . And my interest rate is 4% . I can get at money in less than a week . And cost me $125.00 to set it up . The amount available is $200,000 .
Have you read the article at all or seen the site?

There are big differences between a conventional loan and a "hard money" loan. The reason why someone gets a hard money loan is because they do not qualify for a conventional loan, need the money urgently, or any of the other reasons above.

If this type of business was not practical for anyone, then obviously these companies wouldn't exist. Just because it doesn't apply to you, please don't discredit it.
 

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I am not sure if this topic belongs on this site. But as a mortgage broker, I know that hard money loans are being used in huge numbers due to current credit crisis. Instead of looking for a lender on the internet, it is better to find local hard money lenders through referrals. The best resources on the web are: reiclub.com and hard money lender guide.
 
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