At the $2 million and fewer loan size, you will discover mostly small regional operators, often made up of real estate developers with plenty of cash liquidity that prefer to shell out short term property loans instead of the stock or bond markets.
Typical loan documents important for a hard money loan will include a Note and also a Deed of Trust; other documentation requirements do vary but may add a personal guarantee from borrower (sometimes non-recourse loans are issued without your own guarantee); personal financial statements like past taxation assessments and evidence of income; and assurance which the borrower has access to sufficient cash to carry out any and all proposed property renovations.
The title insurance provider will handle any points that arise in the property sale, of course, if a competing claim of ownership is deemed legitimate, the title insurance provider is responsible for payment from a fees on the claimant.
Since title insurance won’t provide any protection out of this, hard money lenders will force away possible Mechanics Liens by looking into making sure that if financing includes a renovation budget, that most sub-contractor and general contractor releases are properly executed before disbursing funds into a borrower.
It needs to be noted that points paid with a longer-term loan a great idea if the borrower needs capital for a longer length of time, which is not uncommon for most hard money lenders to feature pre-payment penalties which ensure that the lender the very least number of months appealing on the loan principal.
While risk tolerance is tremendously dependent upon the loan originator, most prudent private money lenders is not going to exceed financing-to-cost ratio of 75 percent, whilst the loan-to-value ratio is frequently kept in the 60 to 65 percent range to make certain a sufficient safety margin.