Some of the most asked questions we get are related to hard money loans and the process involved in arranging them.

At Cornerstone, we've worked with many hard money lenders from the smallest, private one-person firms to the largest corporations.

Regardless of size, most are asset based lenders, meaning their loans are based purely on the value of the asset being pledged as security. Typically hard money lenders will lend a maximum of 50-65% of the "as is" value of the asset (its current value in the market place).

For this reason, hard money lenders are less concerned with things like the borrower's credit score, personal financial status, or cash reserve position.  This is mainly due to the fact that if the lender has to take back a property encumbered by a loan of only 50-65% of its fair market value, they would likely recoup their money by selling the property, even if it were sold at a steep discount.

With such a low loan to value ratio hard money lenders have a relatively low risk position and can afford to be more lenient with underwriting guidelines than a conventional commercial lender, requiring much less upfront documentation from the borrower, and therefore responding much more quickly.

In general, very few documents are actually needed to facilitate a hard money loan.  In the case of a stabilized commercial property the lender will look for current and historical income and expense statements, clean title, and a recent appraisal.  For land loans they'll focus much more closely on establishing an appropriate value so they'll spend more time reviewing the appraisal.  In the case of construction loans, they'll be concerned not only with the current value of the property, but also with the value of the property once construction has finished.

Many hard money lenders draw their funds from conventional sources such as other banks, lines of credit, hedge funds, etc. and have a cost associated with the capital they borrow.  To make a profit, they need to relend that money at a sufficient spread above their own cost of capital.  As such, hard money loans are typically more expensive loans to carry both in origination and interest rate.  It's not uncommon for hard money lenders to charge between ten and fifteen percent interest per year and two to ten points in origination.

What they lack in pricing they make up in speed.  Most hard money lenders review loan requests and issue letters of interest or pre-approvals within 48 hours.  In addition, title and appraisal can be ordered and received within seven to ten days.  If all is satisfactory, closing can be schedule soon thereafter, sewing up the entire process in as little as two weeks.

For more information about hard money loans or to submit your project for review, view our hard money loan guidelines or contact us at your convenience.