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Hard Money loans for december 2022 in the United States

Apply for a Hard Money loans from companies verified by our specialists. On 03.12.2022 you have access to 0 loans with a rate of 0% per day. Increase your chances of getting money — fill out a multi-application with a free credit rating check.

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Hard Money loans for december 2022

What is a hard money loan?

A hard money loan is a short-term loan that allows the borrower to acquire hard assets such as real estate with the condition that the acquired hard asset acts as collateral for this loan. Finding a bank or other traditional lender that offers hard money loans is difficult. Usually, a borrower can take such a loan from private investors.

How hard money loans work?

Hard money lenders pay special attention to the value of the property the borrower offers them as collateral. All repayment terms, such as interest rate and loan term, are based on the value of the borrower's real estate, car, or other property. At the same time, the borrower cannot take out a loan for an amount equal to 100% of the property's market value. Usually, lenders offer loan amounts equal to 65% to 75% of the property's value. If the borrower loses the ability to pay the loan, the collateral will become the lender's property.

This loan has a short repayment period, usually from 1 to 3 years. Such a short repayment period implies that the interest rates of such a loan are usually higher than those of other credit options. The interest rate is also high because such a loan offers a quick receipt of a large amount of money without demonstrating an ideal credit history.

Such a loan is popular among property flippers who buy non-repayments on credit, make renovations and install improvements and then sell for more than the original price.

Pros and cons of hard money loans

Pros

  1. The most significant advantage of a hard money loan is the simple and fast process of obtaining a loan. The approval process is faster than in other traditional loans, as lenders pay attention only to the value of the borrower's property and not their financial situation. 

  2. Hard money lenders do not spend much time reviewing the borrower's financial documentation and performing a credit check. Therefore the borrower receives approval from the lender very quickly. The process can proceed even faster if the borrower already has an established relationship with the lender.

  3. Hard loan investors do not so closely monitor that the borrower makes payments on time. This is because, in some cases, it is beneficial to the lender that the borrower does not have the opportunity to repay the loan and defaults. In such situations, lenders see the benefit in selling the property on their own and making a profit from it.

Cons

  1. Hard money loans have one of the lowest loan-to-value (LTV) ratios among all credit options. This is because the property purchased by the borrower is the only guarantee of the security of such a loan for the lender since private investors do not check the credit history of the borrower. The loan-to-value (LTV) ratio for such loans varies from 65% to 75%.

  2. The interest rate on hard money loans is much higher than for many other traditional loans and even subprime loans. Private investors themselves set the interest rate for loans that they issue, and most often, in pursuit of profit, set the highest rates. Such high rates can also be explained by the fact that lenders offer the borrower a quick receipt of a large amount of money and charge a large fee for such a convenient service for the borrower.

  3. Some hard money lenders may not accept the borrower's primary residence as collateral because of regulatory oversight and compliance rules.

Conclusion

Hard money loans are suitable only for experienced property flippers. A borrower with other goals should pay attention to other credit options, even though they involve a credit check and a long time to get approval. The long wait is worth it to get a loan with a high loan-to-value (LTV) ratio. If the borrower does not have a specific purpose for taking a hard money loan, then they only risk losing funds and paying much more interest than for any other loan.

Hard money vs. private money

Any individual and any organization can act as a private money lender. Therefore, credit conditions vary greatly depending on a particular lender. Hard money lenders, in most cases, will not change any repayment terms at the request of the borrower. At the same time, a private money lender can have flexible loan terms, and the borrower can easily negotiate with such a lender. The borrower can, for example, extend the loan term or lower the interest rate if the lender agrees.

However, the fact that any individual or organization can be a private money lender has a significant drawback. Private money lenders are not regulated by law in any way, which can create some problems for the borrower. The lender may turn out to be a fraudster and can change the terms of the loan as he wishes without the borrower's consent. Hard money lenders have lender licenses and cannot commit illegal actions.

Another problem with private money lenders is that it is quite difficult for the borrower to find them. Hard money lenders, like traditional lenders, advertise themselves and can easily be found on the Internet. Private money investors find clients by word of mouth; therefore, finding them is much more difficult.

How to apply for a hard money loan?

How to choose a lender

When choosing a suitable hard money lender, the borrower should pay attention to the geographical location of the lender. Taking into account the fact that hard money loans are mainly taken for the purchase of the real estate, it is possible to say that the geographical location of the lender is very important. The appraiser whom the lender will hire to determine the value of the property must inspect the property that the borrower is acquiring. Contacting a lender from another state can noticeably slow down the process of obtaining a loan.

The borrower needs to compare interest rates and loan-to-value (LTV) ratios of as many different lenders as possible. When comparing, the borrower needs to look for the lowest interest rate and the highest LTV ratio. LTV ratios for this type of loan are usually low, so it is important to look for the maximum possible percentage.

If the borrower has already taken a hard money loan in the past, then they should contact the same lender since, in this case, the process of obtaining funds may take only one day. The usual time of approval is about seven days. The borrower is recommended to look for a lender with a short time of approval.

Another important factor when choosing a lender is the availability of a license. Hard money lending requires a license, and the borrower should check it in order not to run into scammers and not lose money.

Recommendations on the eligibility

Although hard money lenders usually do not pay attention to the borrower's credit history, it is still recommended to have at least a 600 credit score. In some cases, for the sake of guaranteeing the security of their investments, the lender can check the borrower's credit score. For those borrowers who purchase real estate for a long time, for example, for renting, it is recommended to have a minimum of 680 credit score since such loans are riskier for the lender.

Even though there are lenders among hard money lenders who are not against the borrower defaulting for the independent sale of property, for most lenders, it is still important that the borrower is solvent. The borrower needs to have a certain level of income so that the debt-to-income ratio is not too high. To confirm the borrower's income level, some lenders may ask borrowers to download pay stubs, tax returns, bank statements, and W-2s.

Bank statements may also be required to confirm the ability to make a down payment. Usually, the down payment for a hard money loan is from 20% to 30%.

Property flippers should also take into account that hard money lenders usually require an After-Repair Value (ARV) of up to 75% of the property.

Some borrowers who are property flippers can get a loan faster if they have had a successful experience of house flipping in the past.

The application process

To submit an online application for a hard money loan, the borrower needs to go to the lender's website and click on the "Apply Now" or "Get Started" button. Next, they need to enter personal information such as name, email, and residential address. Next, the borrower needs to answer questions about their experience in investing in real estate and experience in real estate flipping. They also need to fill in information about the desired property, such as the type of real estate, the state in which the property is located, and the market value. Next, the borrower needs to enter information about employment and the amount of annual income. When all the data is entered, the lender may ask the borrower to upload additional documents to confirm the income level.

Ways to pay a hard money loan back

Before taking a hard money loan, the borrower should carefully consider the repayment plan. The main difficulty of paying hard money loans is a special repayment schedule. This loan has a short life span, and therefore, in addition to interest payments for 1 to 3 years, the borrower must pay the principal to the lender in one payment after the loan term ends.

For the borrower to calculate the budget and make a repayment plan for the loan, they need to use the hard money loan calculator. Such calculators can be found freely available on the Internet. The borrower needs to enter the loan term, interest rate, and property value into the calculator. The calculator will automatically calculate how much the borrower will need to pay to the lender.

Property flippers usually have no problems paying hard money loans as they buy real estate, install improvements, make repairs, and sell at a higher price during the year. This is how they pay off the lender and make a profit. Borrowers who have acquired a non-residential property for rent or commercial purposes do not have the opportunity to close the loan so quickly. Refinancing is suitable for them. Refinancing allows the borrower to extend the loan term and split the principal amount into equal monthly payments. Borrowers can take cash out to refinance loans from a bank or another traditional lender.

FAQ

What is meant by a hard money loan?

A hard money loan is a short-term secured loan in which the collateral is the property that the borrower acquires. If the borrower defaults, the property becomes the property of the lender. Banks or other traditional lenders do not offer this loan. Usually, borrowers take such a loan from private investors.

How to get a hard money loan?

A potential borrower needs to find private investors with the appropriate license to take a hard money loan since banks and other traditional lenders do not issue such a loan. To apply, the borrower must have information about the desired property, a minimum credit score of 600, and a low debt-to-income ratio. Some lenders may ask for pay stubs, tax returns, W-2s, and bank statements to confirm the income level.

Can you refinance a hard money loan?

Yes, it is possible to refinance a hard money loan. Those borrowers who buy real estate for commercial or rental purposes usually refinance a hard money loan to pay the principal amount. One of the ways to refinance is to cash out refinance in a bank. Such refinancing allows the borrower to pay the principal amount in the long repayment term and not the entire amount at once.

Why would you use a hard money lender?

Hard money loans are most suitable for property flippers who buy real estate, renovate it and sell it for more. This loan allows the borrower to get funds in a week and quickly close the loan in a short period of 1, 2, or 3 years. It is due to the speed that this loan is beneficial for property flippers.