Hard Money Loans For Real Estate Investors
Obtaining hard money loans can be a great way to get the money you need to make a deal. However, not all lenders are willing to work with you. Here are a few things to look for before you apply.
Property flippers
Whether you’re a seasoned real estate 
investor or a first time flipper, it’s important to find the right financing options to make your investment profitable. Hard money loans for property flippers offer fast access to the resources you need to buy and renovate a property. They also give you the freedom to buy a property at a price that’s lower than the market value, which gives you a great ROI.
Hard money loans are typically provided by private lenders. The lender will provide you with 70 to 90 percent of the funds you need to complete your project. The terms of the loan vary from lender to lender. The loan can close in as little as seven to ten days.
In order to apply for a house-flipping loan, you’ll need to provide information on your residential and credit history, as well as your employment history. Many hard money lenders will require a down payment on your home to secure the loan.
The best way to ensure you’ll find a good deal is to research the local market and know what houses are for sale in your neighborhood. You can also ask other house flippers about their lending experiences. You can even borrow from friends or family. However, you’ll want to keep in mind that using a lender is more expensive than buying cash.
Commercial property investors
Purchasing and investing in commercial property can be a difficult task. Many deals require time and money, and there are a number of surprises that can be encountered. Fortunately, hard money loans can help investors get the property they need.
Before applying for a loan, it’s important to do a bit of research. Depending on your goals, a hard money loan may be a better choice for you than a conventional bank loan.
The key to getting approved for a loan is having a good credit score. Your debt to income ratio, along with your credit score, will be used to qualify you for a mortgage. If your income is too high for the interest rates you will be offered, you may not be able to purchase the property you want.
You’ll also need to show that your investment is performing. This means that your business is making enough money to cover expenses and debt. If you don’t, you may loose your property or materials.
There are two ways to acquire a commercial property, either by paying cash or by taking out a loan. The latter is usually faster and requires less paperwork.
Getting a hard money loan can speed up the process of acquiring a commercial property. It may even turn a challenging property into a profitable one.
Common uses of hard money loan proceeds
Whether you are looking to buy an investment property or flip a house, hard 
money loan proceeds can help you achieve your real estate goals. These loans are typically provided by private lenders and are secured by real estate. They are based on the value of the asset and not on the credit history of the borrower.
If you’re considering a hard money loan, you might be wondering how to get one and what the process is like. There are pros and cons to each type of loan and knowing what to expect can make the process easier.
Hard money loans are often used by investors who want to quickly and inexpensively purchase a property. These types of loans are not suitable for buying a home for your own use. They’re typically offered for a period of 12 to 24 months. Typically, the loan amount will cover 70% to 90% of the total cost of the property. You may be required to pay the full amount back at the end of the term.
The process for getting a hard money loan can be relatively fast, allowing you to complete your project in a matter of weeks. However, there are additional costs to consider, including an origination fee. Typically, the fee ranges from 1 to 3 percent of the loan.
FAQ
Frequently Asked Questions
How do hard money loans work?
- Collateral-Based Lending:
- Hard money loans are asset-based, meaning they are secured by the value of the property being financed. The lender evaluates the property’s market value and condition to determine the loan amount, known as the loan-to-value (LTV) ratio.
- Quick Approval and Funding:
- One of the main advantages of hard money loans is their fast approval and funding process. Unlike traditional lenders, which may have lengthy approval procedures, hard money lenders can make quick decisions, allowing investors to capitalize on time-sensitive opportunities.
- Short-Term Duration:
- Hard money loans are short-term, with durations typically ranging from six months to a few years. The short-term nature aligns with the purpose of these loans, which is often to facilitate quick transactions or renovations.
- Interest-Only Payments:
- Borrowers usually make interest-only payments during the loan term. This means they pay only the interest on the loan each month, with the principal amount due at the end of the loan period.
- Higher Interest Rates:
- Hard money loans generally come with higher interest rates compared to traditional loans. The increased cost reflects the higher risk for the lender, as well as the speed and flexibility provided to the borrower.
- Use Cases:
- Real estate investors often use hard money loans for various purposes, including property acquisitions, renovations, and flips. These loans can also be suitable for situations where traditional financing is not readily available due to the property’s condition or the borrower’s financial situation.
- Exit Strategy:
- Borrowers need a clear exit strategy for repaying the loan. Common exit strategies include selling the property, refinancing with a conventional mortgage, or using other funds to settle the debt. The success of the investment often relies on executing a well-defined exit plan.
- Risk of Default and Collateral Seizure:
- If a borrower fails to repay the loan according to the terms, there is a risk of default. In such cases, the lender may seize the collateral (the property) to recover their investment. The short-term nature of hard money loans increases the importance of a well-executed exit strategy.
- Due Diligence:
- Both lenders and borrowers engage in due diligence. Lenders assess the property, the borrower’s experience, and the viability of the investment. Borrowers, in turn, should carefully review the terms of the loan, including interest rates, fees, and conditions.
- Flexibility:
- Hard money lenders are often more flexible than traditional lenders, allowing borrowers with unique situations or less-than-perfect credit to secure financing. This flexibility can be advantageous for certain real estate investment scenarios.
In summary, hard money loans provide a quick and flexible financing option for real estate investors. However, borrowers should carefully evaluate the terms, understand the associated costs and risks, and have a well-thought-out exit strategy to ensure the success of their investment. Due diligence is crucial for both lenders and borrowers in the hard money lending process.
How to qualify for a hard money loan?
- Property Value:
- Hard money loans are typically secured by the value of the property being financed. The lender assesses the property’s current market value and may lend a percentage of its appraised value. A higher value property can increase your borrowing capacity.
- Loan-to-Value (LTV) Ratio:
- The loan-to-value ratio is the ratio of the loan amount to the property’s appraised value. Hard money lenders often have maximum LTV ratios, and a lower ratio may improve your chances of approval.
- Equity in the Property:
- Lenders look for sufficient equity in the property to minimize their risk. The more equity you have, the more likely you are to qualify for a hard money loan.
- Exit Strategy:
- Having a clear and viable exit strategy is crucial. Lenders want assurance that you have a plan to repay the loan, whether through selling the property, refinancing with a traditional loan, or another means.
- Borrower’s Experience:
- Some hard money lenders consider the borrower’s experience in real estate investing. If you have a successful track record, it may positively impact your eligibility.
- Credit Score:
- While hard money lenders focus more on the property’s value than the borrower’s credit score, some may still have minimum credit score requirements. A higher credit score can enhance your chances of approval.
- Ability to Repay:
- Lenders assess your ability to make interest payments. They may review your income, other financial obligations, and the potential cash flow from the property to ensure you can meet repayment requirements.
- Down Payment:
- Hard money lenders may require a substantial down payment or equity contribution from the borrower. A larger down payment can reduce the lender’s risk and improve your chances of approval.
- Property Type:
- Some hard money lenders specialize in specific types of properties (e.g., residential, commercial). Ensure that the property type aligns with the lender’s criteria.
- Legal and Regulatory Compliance:
- Compliance with legal and regulatory requirements is essential. Ensure that your project and loan terms comply with local laws and regulations.
- Communication and Documentation:
- Prompt and clear communication with the lender is important. Be prepared to provide necessary documentation, such as property details, financial statements, and your investment plan.
It’s crucial to note that hard money lenders vary in their requirements, so it’s advisable to research and choose a lender whose criteria align with your financial situation and investment goals. Before applying for a hard money loan, consider seeking advice from financial professionals to ensure that it’s a suitable option for your specific circumstances.
How to evaluate hard money loans?
- Interest Rates and Fees:
- Understand the interest rates associated with the loan. Hard money loans often have higher interest rates than traditional loans, so compare rates among different lenders.
- Consider additional fees such as origination fees, closing costs, and points. These can significantly impact the overall cost of the loan.
- Loan-to-Value (LTV) Ratio:
- Determine the loan-to-value ratio, which is the loan amount as a percentage of the property’s appraised value. Lower LTV ratios may indicate a lower risk for the lender.
- Loan Term:
- Hard money loans are typically short-term, ranging from a few months to a few years. Evaluate whether the loan term aligns with your investment strategy and exit plan for the property.
- Repayment Terms:
- Understand the repayment terms, including whether the loan requires interest-only payments or if there’s a balloon payment at the end of the term. Clarity on repayment terms is essential for financial planning.
- Speed of Approval and Funding:
- Assess the speed at which the lender can approve and fund the loan. The quick turnaround is often a key advantage of hard money loans, but the specific timeline can vary among lenders.
- Lender’s Experience and Reputation:
- Research the lender’s experience in providing hard money loans and their reputation in the industry. Look for reviews and testimonials from other investors who have worked with the lender.
- Flexibility:
- Consider the lender’s flexibility in terms of property types, borrower qualifications, and special situations. Some hard money lenders are more flexible than others, which can be beneficial for certain investment scenarios.
- Default Terms and Consequences:
- Review the terms related to default, including any penalties or additional fees. Understand the consequences if you’re unable to repay the loan within the agreed-upon terms.
- Loan Conditions:
- Examine any conditions or requirements set by the lender. This may include property inspections, insurance requirements, and other stipulations that must be met to secure and maintain the loan.
- Exit Strategy:
- Have a clear exit strategy for repaying the loan. Whether it’s selling the property, refinancing with a traditional loan, or another method, a well-defined exit plan is crucial.
- Legal and Regulatory Compliance:
- Ensure that the lender complies with legal and regulatory requirements. Working with a reputable and compliant lender reduces the risk of legal complications.
Before committing to a hard money loan, it’s advisable to consult with financial advisors and legal professionals to ensure that the terms align with your investment goals and risk tolerance. Careful due diligence can help investors make informed decisions and mitigate potential risks associated with hard money financing.
Interest rates on hard money loans?
Interest rates on hard money loans can vary widely depending on the lender, the borrower’s creditworthiness, the loan-to-value ratio, and the specifics of the deal. Generally, hard money loans tend to have higher interest rates than traditional bank loans because they are typically used for short-term financing and carry higher risk for the lender.
Interest rates for hard money loans could range anywhere from 7% to 15% or even higher, with some lenders charging additional fees on top of the interest rate. These rates can also vary based on the location and the prevailing market conditions. It’s essential for borrowers to shop around and compare offers from different lenders to find the best terms for their specific situation.
What is a hard money loan?
A hard money loan is a type of short-term financing typically used by real estate investors to acquire properties quickly or to finance renovations. Unlike traditional bank loans, hard money loans are usually provided by private investors or companies, rather than banks or financial institutions.
Key characteristics of hard money loans include:
- Collateral-based: Hard money loans are secured by the property being purchased or renovated, rather than the borrower’s creditworthiness or financial history. The value of the property serves as collateral, reducing the lender’s risk.
- Short-term: Hard money loans are generally short-term loans, typically ranging from a few months to a few years. They are often used for quick purchases, renovations, or to bridge the gap until a property can be refinanced or sold.
- Higher interest rates: Because hard money loans are considered riskier for lenders due to their short-term nature and reliance on collateral rather than borrower creditworthiness, they often come with higher interest rates compared to traditional bank loans.
- Quick funding: Hard money loans are known for their fast approval and funding process. This can be advantageous for real estate investors who need to move quickly to secure a property or take advantage of time-sensitive opportunities.
- Flexible terms: Hard money lenders may offer more flexibility in terms of loan terms and eligibility requirements compared to traditional lenders. This can be beneficial for borrowers who may not qualify for conventional financing due to credit issues or other factors.
Overall, hard money loans can be a valuable tool for real estate investors looking to finance projects quickly or take advantage of investment opportunities that may not be feasible with traditional bank financing. However, borrowers should carefully consider the terms and costs associated with hard money loans before proceeding, as they can be more expensive than other forms of financing.
How long are hard money loans?
- Short-Term Duration:
- Many hard money loans have a short-term duration, often ranging from six months to two or three years. The short-term nature of these loans aligns with the typical use case for hard money financing, which is to facilitate quick real estate transactions or renovations.
- Interest-Only Payments:
- During the loan term, borrowers often make interest-only payments, with the principal amount due at the end of the loan period. This structure allows investors to minimize monthly cash outflows and focus on their investment strategy.
- Balloon Payments:
- Some hard money loans may have a balloon payment, where the entire principal amount is due at the end of the loan term. Borrowers should be prepared to either sell the property, refinance with a traditional loan, or have alternative financing in place to repay the loan.
- Flexible Terms:
- While short-term durations are common, hard money lenders may offer some flexibility in structuring loan terms based on the borrower’s needs and the specific project. However, the emphasis is generally on providing quick, short-term financing.
- Renewal Options:
- In certain cases, borrowers may have the option to renew or extend the hard money loan. However, this is typically subject to the lender’s approval and may involve additional fees.
It’s important for borrowers to carefully consider the duration of the hard money loan in relation to their investment strategy and exit plan. Real estate investors often use hard money loans to acquire properties, make improvements, and then either sell the property or refinance with a conventional mortgage within the short loan term.
Before entering into a hard money loan agreement, borrowers should thoroughly review and understand the terms, including the duration, interest rates, fees, and any conditions associated with the loan. Additionally, having a well-defined exit strategy is crucial to ensure that the borrower can repay the loan within the agreed-upon timeframe.
How long does it take to get a hard money loan?
- Application and Pre-Approval:
- The initial application process for a hard money loan can often be completed relatively quickly. Some lenders may provide pre-approval within a few days, especially if the borrower provides the necessary information promptly.
- Property Valuation and Due Diligence:
- After pre-approval, the lender typically conducts a property valuation and due diligence. This process may involve an appraisal, inspection, and verification of the property’s condition and value. The timeline for this stage can vary but often takes a couple of weeks.
- Underwriting:
- Once the property due diligence is complete, the lender moves to the underwriting stage. This involves a thorough review of the borrower’s financial situation, the property’s value, and the overall feasibility of the loan. The underwriting process may take a few days to a couple of weeks.
- Loan Approval:
- After underwriting, the lender makes a decision on whether to approve the loan. If the loan is approved, the borrower is notified, and the terms are finalized. The approval process can take a few days.
- Loan Closing:
- The closing process involves signing the necessary documents and transferring funds. Hard money lenders often prioritize speed in this stage. Depending on the complexity of the transaction, loan closings can take place within a few days to a couple of weeks.
In summary, the entire process of obtaining a hard money loan can take anywhere from a few weeks to a couple of months, with many lenders aiming for a quicker turnaround. The key advantage of hard money loans is their ability to provide funding rapidly, making them suitable for real estate investors who need to act quickly on opportunities. However, it’s essential for borrowers to be proactive in providing required documentation and information to expedite the process. Additionally, the specific timeline can vary among different lenders and may be influenced by market conditions and the individual circumstances of the loan.
Hard Money Loans For Real Estate Investors Pros and Cons?
Pros:
- Quick Approval and Funding: Hard money loans are known for their fast approval process and quick funding. This can be beneficial for real estate investors who need to act quickly on a potential deal.
- Flexibility: Hard money lenders are often more flexible than traditional lenders in terms of the types of properties they finance and the qualification criteria. This can make it easier for investors with less-than-perfect credit to secure a loan.
- Asset-Based Lending: Approval for hard money loans is primarily based on the value of the property being used as collateral, rather than the borrower’s creditworthiness. This makes it accessible to investors who may not qualify for traditional loans.
- Opportunity to Leverage Deals: Investors can use hard money loans to leverage multiple deals simultaneously, potentially increasing their overall returns.
Cons:
- High Interest Rates: Hard money loans typically come with higher interest rates compared to traditional loans. The cost of borrowing can be significant, affecting the overall profitability of a real estate investment.
- Short-Term Nature: Hard money loans are short-term, usually with a term of one to three years. This can create pressure for investors to either sell the property or refinance within a short timeframe.
- Upfront Costs: In addition to high-interest rates, hard money loans may have upfront costs such as origination fees, closing costs, and points, making them more expensive than traditional loans.
- Risk of Losing Collateral: If an investor is unable to repay the loan, there’s a risk of losing the property used as collateral. This risk is higher due to the short-term nature of hard money loans.
- Limited Regulation: Hard money lenders are less regulated than traditional lenders, which means borrowers may have fewer consumer protections. It’s crucial for investors to carefully review terms and conditions.
In summary, while hard money loans offer speed and flexibility, they come with higher costs and risks. Real estate investors should carefully weigh the pros and cons, considering their specific financial situation and investment goals. It’s also advisable to consult with financial professionals and legal advisors before pursuing hard money financing.
Residential hard money loans?
Interest rates for residential hard money loans can also vary depending on factors such as the borrower’s creditworthiness, the loan-to-value ratio, and the specific terms of the loan. Generally, residential hard money loans tend to have higher interest rates than traditional mortgages because they are typically used for short-term financing or for borrowers who may not qualify for conventional financing.
Interest rates for residential hard money loans could range from around 8% to 14% or higher, depending on the lender and the specifics of the loan. Additionally, borrowers may also incur additional fees, such as origination fees or points, which can further impact the overall cost of the loan.
It’s important for borrowers to carefully consider the terms and costs associated with residential hard money loans and to compare offers from different lenders to find the best option for their needs. Working with a reputable lender who specializes in residential hard money loans can also help borrowers navigate the process and find the most suitable financing solution.
What credit score is needed for a hard money loan?
Unlike traditional bank loans, which heavily rely on the borrower’s credit score and financial history, hard money loans are primarily asset-based, meaning the value of the property being used as collateral plays a more significant role than the borrower’s credit score.
While some hard money lenders may still consider the borrower’s credit score and financial situation, they are generally more lenient compared to traditional lenders. Instead, hard money lenders focus on the value of the property, the loan-to-value ratio, and the potential for profit from the investment.
In many cases, borrowers with poor credit or limited credit history may still be able to qualify for a hard money loan as long as the property being used as collateral has sufficient value and potential. However, borrowers should expect higher interest rates and fees if their credit is less than stellar.
Ultimately, the specific credit score requirements for a hard money loan can vary depending on the lender and the details of the loan. Some hard money lenders may have minimum credit score requirements, while others may be more flexible. It’s essential for borrowers to research and compare offers from different lenders to find the best option for their individual situation.
Real Estate Loan Product Summary – Requirements & Documents
| HARD MONEY BRIDGE LOANS (FIX & FLIP OR CASHOUT REFINANCE) | |||
|---|---|---|---|
| LOAN-TO-VALUE (LTV) % RANGE | $100,000 - $50,000,000 (Min. Property Value is $150K) | Credit Above 650 •Experienced Investor •Low-risk Property | |
| Area50% to 65% (Up to 80% of Rehab Funds) | Low/No Credit •Limited Experience •High-risk Property | ||
| TERM LENGTH | 6 to 24 Months (Interest Only) | ||
| INTEREST RATE % RANGE | 7% to 9% | •Credit Above 640 •Experienced Investor | |
| 9% to 14% | •Low/No Credit •Limited Experience | ||
| PRE-PAY PENALTY | Varies | ||
| FOREIGN NATIONALS | Eligible | ||
| TIME TO CLOSE | 2 to 4 Weeks | ||
| DOCUMENTS REQUIRED FOR PRE-APPROVAL | •1003 Real Estate Loan Application •3 Months of Bank Statements •Purchase Agreement (if buying) •Recent Mortgage Statement (refi) •Recent Credit Report •Copy of Appraisal (if available | ||