a sub prime lender lends to individuals who have less than perfect credit (maybe to much debt, to little credit history, a history of late payments, etc…)
a hard money lender will also lend to people who have less than perfect credit but are often more interested in the property and making sure they can get their money out if necessary… a hardmoney lender is a short-term solution that often offers between 1-5 year balloons, 15% interest only payments, and charges between 1-5 points upfront.
once a hardmoney lenders balloon is due you are either to arrange a refinance of the property or to have had the property sold by this time.
There is a definite difference by and between sub-prime lenders and hard-money lenders. Although most people associate sub-prime lenders with bad credit situations, this is not always the case. Non-conforming sub-prime lenders are not restricted by the rules of Freddie Mac and Fannie Mae. That is why they can do deals for people with bad credit, however, these types of lenders offer a great deal of flexibility when it comes to terms and conditions and are great when it comes to creative financing whether you have bad credit or not. Hard-money lenders are an entirely different story. You must use caution when selecting a hard-money lender. There are many private lenders calling themselves hard-money lenders in order to justify charging super high interest rates and big points up front. The typical terms and conditions of a hard-money lender would be 8-12 points up-front and 14-18% interest and I can assure you at 14-18% interest they will be more than happy to allow you to roll your points into the loan. Typically they want to see a deal at a maximum of 65% LTV. This is NOT a credit score driven product. The one sure fire way to tell the difference between a private lender and a hard-money lender is if the lender wants to see your credit. If the lenders wants to see your credit, you will know the lender is a private lender or investor. I know of a lender, here in Chicago, that will go up to 75% LTV on the after repair value of the property. Interest rate is just above 10% and typically charges 10 points on the deal with no money down. However, you must have a 600 credit score. So do yourself a favor and do your homework so that you don’t get suckered by some of these private investors or lenders who call themselves hard-money lenders. Talk with as many mortgage brokers in your area as you can. I’m sure you will find one who is worth working with.