HARD MONEY 101
A bridge loan is interim financing for an individual or business until permanent financing can be acquired. Like Hard Money loans, Bridge loans can come at a higher cost than conventional financing to compensate for the additional risk. Bridge loans are often used for commercial real estate purchases to close quickly on a transaction, salvage distressed property, or make purchases at foreclosure auction. Specifically, Rain City’s bridge loans are only for non-owner-occupied deals.
There are several, but one of the biggest differences is closing time. While a traditional loan might take 6-8 weeks to close, hard money loans typically take less than a week. In addition, traditional loans normally cover only single family homes and certain types of commercial properties – hard money loans can cover all types of properties, depending on their condition.
- Flips / Investments
- Land loans
- Construction loans
- Foreclosure auctions (or other similar “need cash fast” deals)
THE NITTY GRITTY:
- Does the lender have suspicious upfront fees, like a $1,000 “Due Diligence Cost” or “Commitment Fee” ? This is a red flag. Some lenders will ask for a small (under $50) fee upfront to cover a background check or credit report, but be wary of larger fees you need to pay out of pocket before the deal is even in the works.
- Is the lender a member of reputable organizations? Many legitimate lenders are members of local real estate investment groups, are active on investment forums, and are sponsors of relevant events. If the lender has a presence online and at meetups, they are likely a solid lender.
- Can the lender provide references? Look for case studies, testimonials, or reviews on the lender’s website. Most lenders will have a blog or testimonials section to speak to their experience in helping real estate investors.
- Does the lender offer a 0% down payment option? While this may not be an indication of a scam, it certainly doesn’t look like the lender is in it for the long-term. Think of the risk involved in getting 100% financing – if, for some reason, the value of your property isn’t as much as you anticipated, you could quickly owe more to your lender than your property is worth. A lender that understands risk would not be eager to finance 100% of your deal.