What is a Hard Money Loan Anyway?

Author: David Nelson

Posted April 5, 2019

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private financial companies. Interest rates are typically higher than conventional commercial property loans, because of the shorter duration of the loans.

Most hard money loans are used for projects lasting from a few months to a few years. The primary difference from conventional loans is that hard money loans often made on commercial property or investment property that may be in transition and does not yet qualify for traditional financing. Hard money also often refers to an asset-based loan with a higher interest rate, or possibly a distressed financial situation.

The loan amount the hard money lender is able to lend is determined by the ratio of loan amount divided by the value of the property. This is known as the loan to value ratio (LTV). Many hard money lenders will lend up to 75-90% of the current value of the property.

"Hard money" is a term that is used almost exclusively in the United States and Canada, where these types of loans are most common. In commercial real estate, hard money developed as alternative financing for property owners seeking capital against the equity in their real estate holdings. The industry began in the late 1950s when the credit industry in the U.S. underwent drastic changes. From inception, the hard money field has been less regulated than commercial banks by state or federal laws.

Because the primary basis for making a hard money loan is the liquidation value of the collateral backing the note, hard money lenders will always want to determine the LTV (loan to value) prior to making any extension of financing. A hard money lender determines the value of the property through a BPO (broker price opinion) or an independent appraisal done in the state in which the property is located.

The interest rates on hard money loans are typically higher than the rates charged for traditional business loans. The interest rates could range from 10% to 18%. Despite this, such loan options are popular for their fast approvals, higher flexibility, and less tedious documentation procedures.




Small Differences in Interest Rates Add Up Over Time

It adds up faster than you think.

Author: David Nelson

Posted March 27, 2019

Toward the end of his life, Benjamin Franklin wanted to give back to Boston, the city that he called home. When he died April 16, 1790, he left $4,500— but that money came with one big stipulation. The sum had to be placed in a trust and invested for 100 years, after which around 75% could be used to help tradesmen and fund civic projects. The rest was to be invested for another 100 years, at which time it would be given in full to the cities.

After the first 100 years, thanks to compounding interest, the trusts in Boston were worth almost $400,000. After withdrawing 75% of the funds to go to charities, the balance was approximately $100,000. By 1990, the remaining amounts had grown to $4.5 million for Boston. Benjamin Franklin anticipated a 5% return on his investments. His actual return was closer to 4% (Sources: American Philosophical Society, New York Times). $4,500 turned into $4.5 million. It adds up faster than you think.

Consider, for example, you contribute $10,000 to a savings account this year. Here’s how much interest you would earn in one year at various rates:

  • 0.01%: $1 of interest
  • 0.50%: $53 of interest
  • 1.00%: $106 of interest
  • 3.50% $350 of interest   (Wasatch Credit 12 month rate)
  • 4.25% $425 of interest   (Wasatch Credit 36 month rate)
  • 4.75% $475 of interest   (Wasatch Credit 60 month rate)

The difference between .01% and 1.00% interest rates seems small, but you literally earn 106 times as much interest. .01% compared to 4.75% is 475 times the interest, each year.

Imagine if you contributed $10,000 and added $100 per month to the balance and earned 4.75%:

$11,675   Balance after 1 year

$19,178   Balance after 5 years

$30,720   Balance after 10 years

Often the difference between financial comfort and financial distress isn't that great. Saving a few dollars a week might not seem like much, but if done consistently it could make a big difference in your financial future. 




Types of Loans 101

Author: Michael Nelson

Posted April 15, 2019

In the world of hard money lending there are a lot of options out there. At times it can be confusing knowing which product is best for your situation. At Wasatch Credit Association we focus primarily on 3 types of loan programs. Fix and Flip, New Construction, and Bridge Loans.

Fix and flip loans are used by real estate investors to acquire a property that is in need of repair, and otherwise not normally financeable through traditional avenues. Fix and flip loans are great because they can offer a fast closing, which can make your offer as an investor more attractive to sellers. At Wasatch Credit Association you are also able to borrow the funds needed to renovate the property to get it into new condition to then sell the property for a profit. The key to making your fix and flip loan a success is speed. You will want to make sure to only borrow the funds for the time needed. The faster you are able to do the necessary fixes the more economical your loan costs will be.

New Construction Loans are loans that are used to build a new home. If you have a buildable lot it can sometimes be hard to secure the finances to get it from a lot to a finished home ready for move in. A New Construction Loan can help you get there! Whether you are a builder yourself, or are going to hire a General Contractor, Wasatch Credit Association can help. We finance projects all the way through framing, rough trades, and finish work. A New Construction Loan is a great way get your project off the ground.

A Bridge Loan does what it sounds like. It bridges the gap between short term financing and more traditional long term financing. It can also allow a person or company to use the equity in one project or property to secure funding for another project. If you have a property or project that is complete and waiting to be sold why wait to start your next project? A bridge loan is a shorter term loan, typically 6 months or shorter. This can be a great option for investors to not pass up an opportunity while waiting for your last project to sell.



The certificates are securities offered by Wasatch Credit Association. They are not insured by the FDIC or any federal or state governmental agency, are not secured by any assets of Wasatch Credit Association, its shareholders, or affiliates, and may be subject to investment risks, including the possible loss of principal value or amount invested.