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1. How do you define "Hard Money?"
2. What is Hard Money Used For?
3. Why would anyone borrow hard money when banks charge lower rates?
4. What does a hard money lender evaluate when making a loan?
5. What are the terms and when will the borrower know them?
6. How long does the process take?
7. Can fees be paid from the loan?
8. What is the term of the loan?
9. Is there a prepayment penalty?
10. What "Loan to Value" (LTV) are you looking for?
11. Do I need to get an appraisal?
12. How much will my payments be?
13. What is Highline’s position on brokers?
14. What is Highline’s turn around time for either a broker or a borrower? |
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| 1. How do you define "Hard Money?" |
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| "Hard Money" loans refer to non-conventional real estate loans. They are usually funded by private money sources and not banks or pension funds, etc. Interest rates and points on such loans are usually higher, and terms usually range from 3 to 12 months. Hard Money loans have one basic requirement, there has to be substantial equity in the property to give the lender a reason to invest their funds. Investors seek hard money loans as conventional financing may not an option or it would take too long to secure. |
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| 2. What is Hard Money Used For?" |
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| Hard money is generally used as a bridge to allow the borrower or property to be brought into compliance with conventional financing guidelines or sold. It is generally a shorter term solution for all types of real estate: commercial, retail, office, industrial, raw land, construction, and land development. |
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| 3. Why would anyone borrow hard money when banks charge lower rates? |
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There are many reasons why a borrower would choose to use private or hard money over less expensive conventional financing. Many borrowers will elect to use private sources for (i) quick closings or (ii) cash flow challenged projects; or (iii) raw land.
In many circumstances banks cannot act fast enough to meet the funding timelines – banks typically take a minimum of 60-90 days to fund a commercial transaction whereas hard money can fund in as little as 10 days. Another type of situation is where the project does not have the cash flow to support a traditional loan. Hard money lenders will look to the value of the property and may factor in interest payments into the loan such that the borrower does not have any interest payments for a period of time. This will allow the borrower time to reposition the property to improve cash flow to enable the property to support conventional financing. Lastly, banks have difficulty underwriting raw land, however hard money lenders may take the risk given the higher rates and fees. |
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| 4. What does a hard money lender evaluate when making a loan? |
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| The value of the property is the most important factor in the underwriting process, although we will also consider the creditworthiness of the borrower and the exit. Many private lenders will make a loan with the eventual goal of owning the property as they believe that the borrower will not be able to refinance the loan at maturity. Highline will carefully evaluate the exit as we are lenders and not property managers. |
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| 5. What are the terms and when will the borrower know them? |
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| Private money is typically 11% - 15% plus 3-5 points. Highline will evaluate the transaction within 24 hours and if the transaction appears feasible, we will submit a non-binding Letter of Intent which outlines all the terms of the loan. If the terms are acceptable, we will request an expense deposit to cover out of pocket costs to begin diligence. We will require an appraisal and can close a loan in two weeks, if necessary. |
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| 6. How long does the process take? |
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| Highline can close a transaction in as little as 10 days. The timing depends on how long an appraisal may take. We have outstanding relationships with our appraisers and can “fast track” a commercial appraisal. We will also conduct other diligence while the appraisal is being done to enable Highline to close within a day or two of the appraisal’s completion. |
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| 7. Can fees be paid from the loan proceeds? |
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| Yes, Highline can be flexible and roll fees and interest into the loan, however there must be enough value in the deal to support the higher note balance as all loans are first and foremost limited by loan to values. |
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| 8. What is the term of the loan? |
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| Highline typically funds 3 to 12 month loans. There may be instances where we may provide 90 day extensions as part of the initial transaction; however we prefer 12 month deals. |
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| 9. Is there a prepayment penalty? |
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| Highline will typically require a minimum 3 month holding period and after 3 months, there are no prepayment penalties. |
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| 10. What "Loan to Value" (LTV) are you looking for? |
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| Highline will advance up to 75% LTV on commercial transactions; 65% LTV on construction projects and 55% LTV on land loans. |
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| 11. Do I need to get an appraisal? |
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| Highline will require an appraisal on all projects. Do to our strong relationships with our appraisers; we can typically get a commercial appraisal in less than two weeks. |
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| 12. What will the payments be? |
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| Highline typically structures its loans in two ways: (i) interest only payments due monthly and (ii) loans where interest is capitalized into the loan so that the borrower does not have an interest payment during the term of the loan. |
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| 13. What is Highline’s position on Brokers? |
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| Highline values the role brokers play in transactions and values their services. We will honor competitive referral fees and we will disclose all fees to all parties so that there are no surprises at closing. |
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| 14. What is Highline’s turn around time for brokers or borrowers? |
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| Highline will commit to providing feedback within the first 24-48 hours of receiving a transaction. We pride ourselves on timely responses as we understand that brokers can go to many places with their deals and borrowers have limited time to funds transactions. |
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