The Wall Street Journal – Through brokers, hard-money lenders offer high-interest, short-term loans to borrowers who can’t get traditional bank financing, including investors and people with spotty credit.
The interest rate can be in the high teens — compared with less than 5% for bank mortgages — while the length can be as short as a few months. Hard-money lenders don’t focus much on a borrower’s credit scores. They care more about asset valuations and loan-to-value ratios.
Many lenders won’t lend more than 50% to 70% of the home’s value, while banks will lend as much as 80% and government-backed loans can go as high as 96.5%.
Because there is little bureaucracy when compared with big banks, deals can be approved and closed in just a few days. “There’s no red tape,” says Merrill L. Kaliser, co-founder of Longhorn III Investments, a Texas lender and broker.