A hard money lender is a direct lender that offers alternatives to traditional lending. Traditional lending institutions require lengthy credit checks, substantial down payments and equity in the property. In addition to a borrower’s credit profile, big bank institutions make decisions to lend based on a property’s current condition instead of a property’s potential or future value. In contrast, a hard money lender has access to investor capital and can lend based on a project’s projected value, not merely a borrower’s credit score. Since direct lenders have quick access to capital, they can lend on projects within a matter of days or weeks; this is a stark contrast to traditional lenders, which can take several months to complete a loan.
Here are some of the key players involved in hard money loans:
- Private Investor – A private investor or hard money lender is someone that lends money for a loan secured by a lien on real estate. Some direct lenders sell their loans, while others keep them in-house. As the project progresses, borrowers work with the lender on drawing money from the loan, which is used to pay for rehab or construction work on a property, such as contractors’ fees, etc.
- Hard Money Lender Inspector – A hard money lender will utilize the services of a third-party inspector to check on all construction and development work before granting monetary draws against the loan. The same inspector that does the pre-closing inspections on the property for the lender will follow a borrower’s transaction after closing. The lender will select an appropriate inspector based on the type of rehab or construction project being considered.
- Appraisal – An appraiser is handpicked by the direct lender based on his/her area of specialty. For example, a residential appraiser is more knowledgeable about rental homes and single-family residences than a commercial appraiser that focuses on large-scale projects. Appraisers can employ several different cost analysis formulas to determine the highest and best use of a property and the appropriate market value based on reasonable marketing time.
- Real Estate Agent – A real estate agent is responsible for marketing and selling the home once the renovation or rehab project is complete. Often times, property management companies use real estate agents to find tenants for investment rentals. Whether the goal is to sell the property to an end user or maintain it as a rental, it is a a good practice for real estate entrepreneurs to establish good working relationships with top real estate agents in their areas.
- Contractors – Contractors are responsible for completing and overseeing the entire building or rehab process on properties. General contractors will coordinate with specialty subcontractors, such as electricians and plumbers, to complete repairs.
- Maintenance – Developers may need to hire third-party vendors, such as landscaping or pest control companies, to maintain the property during the construction process.
- Title Insurance Company – A title insurance company provides insurance to the borrower and lender, protecting against past defects that may arise in the future. Examples of these types of defects that can negatively affect a property’s value include encumbrances, forgeries, undisclosed heirs, liens, probate matters, errors in tax records, etc. There are varieties of endorsements to standard title policies, including those that protect against inaccurately recorded surveys.
- Escrow Company – An escrow company closes a real estate transaction. They are responsible for drafting, preparing and recording legal title transfers and filing these documents with the necessary local or state departments. In most cases, the title company will also act as the escrow agent.
- Loan Servicer – A servicing department collects and records loan payments. The lender may complete this in-house or outsource these services to another party.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans over that time period. We specialize in financing all types of residential and commercial property investments throughout Texas. Using a common sense and value added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving clear title and a complete file. The process generally takes from two to three weeks, but can be accelerated where circumstances require it.
We are an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.