Hard money comes in many varieties; one of the most common is mortgage loans especially commercial loans. Using the owner’s equity in real estate, hard money lenders generally lend up to 65% - 70% of the value of real estate property. In general, hard money mortgage loans are used for commercial purposes. However, they can also be applied to residential properties. In this instance, the loan is generally referred to by its more politically correct name: a non-conforming mortgage.
Lending criteria for hard money mortgages are fairly simple. The loan is based on the value of the ‘subject property’ – either real estate owned or about to be purchased by a borrower. If the borrower is buying property, the "value" of the real estate is defined as the actual purchase price of the property. If the borrower needs hard money for a refinance situation, the ‘value’ is determined by a written real estate appraisal. If you are looking for a hard money refinance loan, the lender will want to know when you purchased the property and what you paid for it. If you bought a property a month ago for a specific sum, the lender will be disinclined to lend you more than that purchase price.
Once you own the property for about a year, especially if you have put some money, sweat equity, or both into the property, you can get a new appraisal and get a loan based on the new, improved value of the property. This is called ‘seasoning.’ Be sure you have seasoned your property before going out for a refinance mortgage at a significantly higher value figure than what you paid for it. It is possible to obtain a refinance or Hard Money Commercial loan without the standard seasoning requirments however.
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