RE/MAX of Boulder Radio hosted Greg Osborne of Colorado-based real estate lender, Bridge Capital Resources. Osborne shared his 30 years of experience with host, Duane Duggan, explaining Hard Money loans.
“The ‘hard’ in a Hard Money loan refers to collateral,” says Osborne.
Hard Money loans are secured by a tangible asset such as property, an oil well, or vehicle. Unlike traditional loans, “a Hard Money lender only looks at one of the five C’s of lending,” says Osborne.
Typically, a loan underwriter evaluates an applicant’s credit, capacity, cash flow, and character in addition to collateral. With this fast-cash option, it’s up to the lender to evaluate how much the collateral is worth, and then how much he or she believes is safe to lend (up to 75% of total collateral worth).
The benefits of Hard Money loans are the speed of the underwriting process. Osborne reports that loan closure for Hard Money typically takes one week from when the applicant starts the process; compare that to 30+ days needed for a traditional loan. In addition, an applicant with less-than-desirable credit can “absolutely” acquire a Hard Money loan with a reliable piece of collateral.
Loans are almost always given to real estate investors and are acquired for two reasons says Osborne: “to acquire property quickly or acquire and renovate.” Renovation loans are based off of post-repair value. In this instance, part of the funds are allocated towards the down payment to acquire the property, with the remainder stored in an escrow account and dispersed as a normal construction loan.
Osborne stresses that Hard Money loans are not long or even mid-term loans, but short-term solutions lasting 6-12 months. Interest-only payments are made on a monthly basis, with a balloon payment at the end of the loan.
A Hard Money lender must know the market inside and out to be able to watch for “over-improvement,” that may drive a property’s cost above market prices.
“If the transaction fails, everyone fails,” says Osborne, who holds a lender responsible for making good market decisions when allocation loans.
Listen to the full interview below and keep up with the latest in the Boulder community on the RE/MAX of Boulder community site, bouldersource.com.