Hard Money Lender Contract

A loan agreement is a document between a borrower and a lender that describes a loan repayment plan. Hard money is a way to borrow without using traditional mortgage lenders. Loans come from individuals or investors who lend money based (for the most part) on the property you use as collateral. Cost: Hard money loans are expensive. If you may be eligible for other forms of financing, you may be ahead of the curve with these loans. For example, with FHA loans, you can also take out loans with less than perfect credit. Expect to pay double-digit interest rates for hard money, and you can also pay a multi-point issuance fee to be financed. Loans of this type usually come with higher interest rates – often up to around 20%. Borrowers are also often asked to pay several points in advance to get the loan (one “point” equals 1% of the loan). For example, for a $100,000 loan, the lender may need three points on financing ($3,000) deducted from the amount advanced, so the borrower actually only receives $97,000 in this case.

I don`t really know how I want to structure this transaction and the lender is open to any scenario. When I originally made this request, I was thinking of LLC with voting member investors and non-voting lenders and a clause that establishes interest buybacks at the time of sale or foreclosure. I`ve found a few models of operating agreements that work with minor changes, and my lender seems to agree with that. Would you recommend anything else? I want to be as fair as possible to my lender because I would like to borrow from them again if this business goes well. I also want to minimize tax concerns for both of us, as the instrument makes a difference. Another disadvantage is that lenders with firm loans cannot provide financing for a homeowner-occupied home due to regulatory oversight and compliance rules. The cost of a hard money loan to the borrower is usually higher than financing through banks or government loan programs, reflecting the higher risk the lender takes in offering financing. However, rising costs are a trade-off for faster access to capital, a less rigorous approval process, and potential flexibility in the repayment schedule. There are pros and cons to hard money loans related to the approval process, loan-to-value (LTV) ratio, and interest rates. This document is often optional, is more common on a hard money loan, and is usually not part of a standard mortgage provided by a large bank. This is usually a simple document that shows an agreement between the borrower and the lender that if full payment is not made on time, the collateral used to secure the loan becomes the property of the lender. There are three types of guarantees: unlimited, limited and conditional.

Both the lender and borrower should have already agreed to these terms before closing and this should not come as a surprise at the closing table. Hard money lenders are quick in foreclosure if the borrower cannot cure the loan. Since the entire property has been used as collateral, any part of the loan amount repaid expires. For example, if a business owner repays $50,000 of a $65,000 loan, they will lose all of the $50,000 paid. Foreclosure measures cost the lender money, and this can be a slow process, especially if the borrower decides to fight the foreclosure in court. A loan agreement is a written agreement between a lender and a borrower. The borrower promises to repay the loan according to a repayment schedule (regular payments or lump sum). As a lender, this document is very useful because it legally obliges the borrower to repay the loan.

This loan agreement can be used for business, personal, real estate and student loans. One of the advantages of a hard money loan is the approval process, which tends to be much faster than applying for a mortgage or other traditional loan through a bank. Private investors who support the hard money loan can make decisions faster because the lender focuses on the collateral rather than an applicant`s financial situation. @Brian Tome Your first post talks about a “lender”. If this is indeed the case, it would traditionally be a promissory note backed by a mortgage or an escrow deed (depending on where the property is located). If you think you`re really looking for an equity partner, it might be appropriate to be a member of an LLC. Lenders spend less time combing through a loan application, such as income verification and financial document verification. If the borrower has an existing relationship with the lender, the process will go even more smoothly.

1. Never sign a personal guarantee for a hard money loan. Hard money loans are made based on the fundamentals of the business itself and have very little to do with the borrower (which, by the way, should be an investor LLC or, in the case of a serial LLC, one of the individual series of the LLC). Signing a personal warranty will add to the potential damage for no reason if the purchase/rehabilitation/resale does not go as planned or within budget. If, in the eyes of the lender, the agreement is not strong enough to be autonomous – this is useful information, by the way – then go. Interest (usury) – The costs associated with borrowing money. Approval with a traditional lender is a painfully slow process – even with good credit scores and plenty of income. If you have negative elements on your credit reports (or income that is difficult to verify to your lender`s satisfaction), the process takes even longer and you may never be approved. First of all, there are no “standard forms” in real estate investments, even though seminar gurus and hard money lenders often claim otherwise. Even forms published by TREC or published by TAR contain several ways to distort the transaction in favor of the buyer or seller. Every good real estate broker and lawyer knows this.

For example, a lawyer`s document templates have several choices that must be made throughout the text, depending on whether the client is a seller or a buyer, a lender or a borrower. The original template can be 30 pages; However, once tailored to the client and aligned to the client`s advantage, the result may be less than 10 pages. This is how lawyers create accurate documents for the benefit of their clients. Inference? If a document is filled in blank, it is almost certainly an oversimplified trash can. Buy your supplies from Office Depot, not your legal documents. What specific documentary actions can an investor-borrower take when negotiating a hard money scenario? Specific circumstances should always be taken into account to answer this question, but here are some examples: If loans need to be made quickly or if traditional lenders do not approve a loan, hard money may be the only option. Let`s check how these loans work. 5. Challenge of default provisions.

Keep in mind that hard money loans are essentially an unregulated market. Many hard money documents are cobbled together from various sources and contain a maze of vague standard provisions that do not include an explicitly stated notice period and the possibility of healing without punishment. These are dangerous. Others are designed by very smart lender lawyers to disadvantage the investor-borrower. These are also dangerous – especially if the investor-borrower bought the line that the loan documents are “standard” and cannot be changed, so he has not consulted a lawyer. .