Ever wondered about hard money lenders and when they should be used in your real estate investing? Well, here's the layman's guide to getting started with hard money loans. We'll begin by presenting the negative aspects of hard money but introduce the benefits towards the end... so read on.

One of the last resorts to fund your real estate deals should be a hard money loan because you are dealing with experienced investors who are on the lookout for good returns on their money which makes it amongst the most expensive money for you to borrow.

Hard money lenders are third party lenders, which means that they are not tied to big institutional lenders like banks and credit unions. Therefore they can charge interest rates that are above market value, which can be 5-10 points higher than regular lenders. Additionally hard money lenders charge points against the loan. "Points" are defined as prepaid interest against the loan. The additional points make it an even more expensive alternative when borrowing money.

So, on the plus side, hard money loans are generally worth approximately 65-70% of the after repair value (ARV) of the property in question. This is beneficial because it allows you to obtain the necessary cash to finance renovation costs as well as the purchase price. This means you can potentially get into a deal with little to no money down if the after repair value to cost ratio is high enough.

A hard money loan is extremely beneficial because you are not qualified based on your credit score or character, but hard money lenders qualify you based on the collateral in the loan. You might be able to get better rates elsewhere, but this offer offers flexibility to those whose credit history or loan serviceability, or even time schedule can't allow for service from a conventional lender.

Hard money lenders could be found in the "money to lend" section of your local newspaper most often. Next would be at a gathering of your local housing investing association. Local hard money lenders will attend every now and then to solicit new business. Also, you can find them on the net by searching for keywords like "hard money lender" or "hand money loans".