Private and Hard Money Commerial Real Estate Loans
First Capital Trust Deeds works with institutional lenders such as regional banks along with trust deed investors to originate bank financing and private money/hard money loans for our commercial real estate investor clients. Both institutional and private money lenders offer commercial mortgages ranging from 12-month bridge loans to 5-year fixed loans with a 30-year amortization schedule.
The difference between institutional and private lender is speed of closing and pricing.
Institutional lenders usually take 30-60 days to close a loan, whether it’s a 12-month bridge or 5-year fixed rate loan. The banks require full appraisals, environmental reports, guarantor’s (borrower) financials, etc. In turn, banks offer better pricing with interest rates starting in the 4.00% range and origination points starting at 1.50%.
On the other hand, private money and hard money lenders can close 12-month bridge loans in as little as 48 hours days, forgoing the appraisal, environmental report (sometimes), and the detailed financial underwriting. In exchange for the rapid turn times on equity-based loans, private money lenders charge higher interest rates starting at 8.00% on bridge loans and limit the Loan-To-Value (LTV) to 65%.
For real estate investors interested in commercial financing, it’s important to weigh the trade-off between lower pricing with bank financing versus speed of closing with private money lenders.