Hard Money vs. Peer Loans

March 4, 2015 sarah Uncategorized

Can you tell the difference between hard money bridge loans and peer to peer loans? If you’re thinking about either type of loan, there are some important differences you should understand.

First, hard money loans are secured by a piece of property using a low Loan to Value (LTV) ratio (and often a high interest rate). Credit score really doesn’t matter, because they are after the high rate of return. Their security comes from the fact that they can foreclose on the piece of property in the event the borrower doesn’t make the payments.

The loan is actually pretty safe for them, due to the fact that the LTV is not only low-balled (60 to 70% max LTV, generally), but the value of the property itself is low-balled using a price that is considered by the investor to be the “quick sale value.” This means the hard money lender can theoretically get his money back in fairly short order in case of default.

Now, let’s deal with the bridge loan aspect of hard money bridge loans. A bridge loan is by definition a short term loan that is intended to bridge the time between the purchase (or need for capital, as the case may be) and the availability of conventional sources of funds. Most underwriters require a seasoning period before they will write a new loan on a property.

For example, let’s suppose an foreclosure investor has the chance to buy a property at far below market value, but the property is going to require a lot of fix-it work. will not loan money because of the condition of the property, a bridge loan may be secured which would give the property buyer the time necessary to make necessary repairs during the “seasoning period.” Later, the hard money loan could be refinanced using conventional financing at a lower rate. If you know where to look, fast hard money loans are available so you don’t have to wait a long time to close the deal.

Lastly, peer to peer loans are simply business or real estate loans made from one private party to another, usually not secured by real property. For instance, a business owner gets a big order, but doesn’t have the money to buy the raw materials to complete the order. So he goes to a business associate who understands his business and has some capital to lend. He is resorting to peer to peer lending in this case to get the deal done.

money bridge loans, money loans, peer loans, seasoning period,