Hard Money Lending

[Jennifer Lee]

I received a request to complete an appraisal that will be used in a hard money deal. I have never completed an appraisal under this type of transaction. Can someone please tell me if there is anything different I need to do? Or do I treat it as a regular appraisal? Please advise. Also, who reviews the appraisal in this transaction?

Thanks in advance.
J. Lee

 

[Joyce Potts]

I received a request to complete an appraisal that will be used in a hard money deal. I have never completed an appraisal under this type of transaction. Can someone please tell me if there is anything different I need to do? Or do I treat it as a regular appraisal? Please advise. Also, who reviews the appraisal in this transaction?

Thanks in advance.
J. Lee

It should make no difference to you as to the source of the funds or the terms, LTV or interest rate for the subject property.

Hard money loans are usually done by private investors who loan to people who can't obtain lending from typical sources for a variety of reasons--usually because of bad credit.

It is a regular appraisal.

 

[Anita Rimer]

I would do it on a general purpose form and not the FANNIE form.

 

[Lee Lansford]

I would do it on a general purpose form and not the FANNIE form.

Best discuss this with the client prior to communicating the appraisal.

 

[Joyce Potts]

I agree with the two posters above. If it's not for FRT, put it on another form. Either the old FNMA form or the general purpose form and make sure you 'tweak' your verbiage. But for all intents and purposes, the valuation methods are the same as any other appraisal for general financing purposes.

 

[Ray Miller]

It should make no difference to you as to the source of the funds or the terms, LTV or interest rate for the subject property.

Hard money loans are usually done by private investors who loan to people who can't obtain lending from typical sources for a variety of reasons--usually because of bad credit.

It is a regular appraisal.

I disagree with you that hard money commercial loans are usually because of bad credit. In some case yes but not the majority. Investment banks, banks and credit unions will also do hard money loans.

Many large hard money loans are put together by participation by a number of smaller lenders combining there funds to make the loan. Sharing the risk between them.

There any many reasons:

Start ups, type of project, money needed for construction, amount and type of land, Length of note, bridge funding, mezzanine funding, urgency of money needed, type of inventory, type of appliances, operating capital and many more reasons.

A lot of commercial projects start with hard money loans, once the project is up and producing income the hard money loan is changed to long term soft money loan.

Hard money loans can be put together many different ways.

Here is one way and it sure would not work with soft money or poor credit. $1.9M for 24 months @12% interest only with 24 month payment reserve to draw from so the borrower makes no payments in the first 24 months, the payments are made from the reserve. Amortized over 30 years. At the end of 24 months if the subject is cashing flowing the loan is converted to a soft money loan for what ever term and interest rate the borrower can find.

I doubt someone with poor credit could arrange a loan like that.

Where and how the money is funded should make no difference in your appraisal.

 

[Joyce Potts]

That's fine Ray, but in my neck of the woods, the term 'hard money' is associated with higher interest rates and stricter terms as compared to general conventional financining, even in the commercial sector.

 

[The Warrior Monk]

Another thing to keep in mind is that the report is likely to be scrutinized. Dot your i's and cross your t's.

 

[Ray Miller]

What type of project is this. If commercial or even some res. I would do it in narrative format. Giving much more detail to the lender so the lender can weigh the risk.

I would not do it on a 1004 or 2055 for sure. Might want to use the AI form if you got to use a form.

 

[Mountain Man]

Check with your client to clear up any special items and the scope of work. I've worked with many hard money lenders, and some want things like current listings, days on market, cost to cure for any repairs, etc. Others just want a regular ole' clean URAR, as they plan to maybe/might sell it off on the secondary market.