Some Pennsylvania real estate developers occasionally encounter financing problems for their projects. Many might turn to an alternative type of debt called a hard money loan. There are several reasons why these types of loans should only be used in case of an emergency, however.
Unlike traditional loans, hard money loans are given by financing groups for very short terms ranging from one to three years. The upfront costs are substantial and the interest rates are normally set very high. The loans are considered to be high-risk. Instead of loaning the appraised value of the property to the borrower, the companies make loans based on the value that they believe the property could sell for in a few months without improvements. This means that the companies will often extend loans that are 50 to 70 percent of the appraised property value.
Hard money loans are quickly granted, normally closing within 7 to 10 days. The loans are equity-based, meaning that the applicants do not have to qualify with their credit, but they will need to be prepared to put down the amount that is required by the lender for equity.
Commercial real estate loans are generally more flexible than are loans for residential real estate. There are several alternate funding sources that might be available for borrowers. Investors and developers may want to consult with a real estate attorney for help with finding funding sources for their projects. There may be other alternatives available than hard money loans. An attorney may help to negotiate the sales contracts and the financing agreements for a particular commercial property and may also complete the title and zoning research for the client.
