Hard Money Lender Mortgages of July 2024

Secure mortgages with competitive rates and flexible terms from hard money lenders online from one of the companies vetted by our experts. As of 24.07.2024, you have 1 options available. Boost your chances of approval by completing an application with a free credit score check.
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Updated:
23.06.2024
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A hard money loan is a type of secured, short-term loan primarily used in real estate transactions. Unlike traditional loans, which are typically issued by banks and rely heavily on the borrower's credit score and financial history, hard money loans rely on the value of the investment property being used as collateral. These loans are often funded by private investors or lending companies and are designed to provide quick access to capital. This makes them particularly appealing to real estate investors looking to finance projects such as house flipping or property renovations.

Hard money loans typically come with higher interest rates and shorter repayment terms compared to traditional mortgages. The interest rates on these loans can range from 10% to 18%, reflecting the higher risk for lenders. Additionally, the repayment period is generally less than a year, although terms can sometimes extend to a few years depending on the specific agreement. The quick funding timeline and flexible terms make hard money loans a viable option for those needing rapid financing, but the higher costs and potential risks should be carefully considered.

Features

  1. Secured by Real Property. Hard money loans use the property as collateral rather than relying on the borrower's creditworthiness. This allows borrowers with poor credit to secure financing based on the value of the asset.

  2. Short Repayment Terms. These loans typically have short repayment periods, usually between six months and a few years. This short term is suitable for real estate investors who plan to renovate and sell the property quickly.

  3. Interest-Only Payments. Many hard money loans require interest-only payments throughout the loan term, with a balloon payment of the principal amount at the end. This can lower monthly payments but requires a large lump sum at the loan's maturity.

  4. Used for Specific Real Estate Purposes. Hard money loans are commonly used for purposes like property flipping, bridge financing, and construction projects. These loans provide the necessary funds to purchase, renovate, or develop properties.

  5. Private Lenders. These loans are typically provided by private individuals or investor groups rather than traditional banks. This private funding allows for more personalized and faster loan approval processes.

Pros and Cons

Pros

Quick Funding. The approval and funding process for hard money loans can be completed in just a few days, making them ideal for borrowers who need immediate access to capital.

Flexible Underwriting. Hard money lenders are often more flexible in their underwriting criteria. They are more concerned with the value of the property than the borrower's credit score and financial history.

Minimal Documentation. Hard money lenders generally require less documentation compared to traditional mortgage lenders. The focus is on the property value and the borrower’s equity rather than detailed financial statements and credit histories.

Cons

Higher Loan-to-Value (LTV) Ratios. Hard money lenders often offer loans with lower LTV ratios, typically around 50% to 70%. This means borrowers need to have substantial equity or additional cash to meet the loan requirements.

Higher Interest Rates. Interest rates for hard money loans are significantly higher than traditional loans, often ranging from 10% to 18%. This compensates lenders for the increased risk they take on.

Higher Down Payments. Borrowers usually need to make a larger down payment, often 20% to 30% or more of the property's value. This higher equity stake reduces the lender’s risk.

How to Get a Hard Money Loan

Apply for a loan

  1. Assess Your Needs. Determine why you need a hard money loan and ensure it’s the right type of financing for your situation. Common uses include property flipping, bridge financing, and other short-term real estate investments.

  2. Evaluate Your Property. Hard money loans are secured by real estate, so the property’s value is crucial. Get an appraisal or have a clear estimate of the property’s current and potential value after any planned renovations.

  3. Prepare a Down Payment. Be ready to make a significant down payment, typically 20% to 30% of the property’s value. Having substantial equity is essential to secure a hard money loan.

  4. Find a Reputable Hard Money Lender. Use referrals from real estate professionals, such as agents, attorneys, or title companies. You can also search online for hard money lenders who specialize in your type of real estate investment.

  5. Compare Lenders. Evaluate multiple lenders to find the best hard money loan rates and terms. Consider the interest rate, loan-to-value ratio, fees, and the lender’s reputation.

  6. Gather Necessary Documentation. Although hard money lenders require less documentation than traditional lenders, you should still prepare basic financial documents. These may include identification, proof of income, bank statements, and details about the property.

  7. Submit an Application. Fill out the lender’s application form, providing detailed information about the property and your intended use of the loan. Be prepared to discuss your exit strategy.

  8. Negotiate Terms. Once pre-approved, negotiate the loan terms with the lender. This can include interest rates, repayment schedules, and any additional fees. Ensure you understand all the terms before proceeding.

  9. Get the Property Appraised. The lender will typically require a professional appraisal of the property to determine its current and potential value. This helps establish the loan amount and terms.

  10. Review and Sign the Loan Agreement. Carefully review the loan agreement, ensuring all terms are clear and acceptable. Pay attention to the interest rate, repayment period, balloon payment terms, and any penalties for early repayment.

  11. Close the Loan. Once the agreement is signed, the loan can be closed. This process is much faster than traditional mortgages, often taking just a few days to complete. Be prepared to pay any upfront fees and closing costs at this stage.

Requirements

  1. Equity or Down Payment. Must provide a down payment or have substantial equity in the property, typically 20% to 30% of the property’s value.

  2. Property Appraisal. The property must be appraised to determine its current and after-repair value (ARV), ensuring it meets the lender’s criteria.

  3. Credit Score. While not as critical as in traditional lending, some hard money lenders may require a minimum credit score, often around 600. However, many focus more on the property value and borrower’s equity.

  4. Debt-to-Income (DTI) Ratio. Although flexible, lenders may still consider the borrower’s DTI ratio to ensure they can manage loan payments. A DTI below 50% is often preferred.

  5. Income Documentation. Basic income documentation may be required, such as bank statements, tax returns, or proof of rental income, to demonstrate the ability to make monthly payments.

  6. Exit Strategy. A clear exit strategy for repaying the loan, such as selling the property, refinancing, or using other income sources. Lenders need assurance that the borrower has a plan to repay the loan at the end of the term.

  7. Property Insurance. Borrowers must provide proof of insurance on the property to protect against potential damage and loss.

  8. Legal Requirements. Compliance with all legal requirements, including any necessary permits for property renovations or construction, as well as meeting local and state regulations.

  9. Reserves. Some lenders may require proof of cash reserves to cover interest payments, unexpected expenses, and any additional costs related to the project.

Conditions

  1. Interest Rates. Typically range from 10% to 18%, significantly higher than traditional mortgage rates due to the increased risk involved.

  2. Loan-to-Value (LTV) Ratio. Usually between 50% and 70% of the property’s current value. Some lenders may go up to 80% in certain cases.

  3. Repayment Term. Short-term, generally between 6 months to 3 years. Most commonly, hard money loans have a term of around 12 months.

  4. Down Payment. Often requires a substantial down payment, typically 20% to 30% of the property's value. In some cases, lenders may require up to 40%.

  5. Funding Speed. Quick approval and funding process, often closing within just a few days to a week.

  6. Fees. Upfront fees including points (percentage of the loan amount), typically 2 to 5 points. Other fees may include application fees, processing fees, and closing costs.

  7. Interest-Only Payments. Many hard money loans require interest-only payments during the loan term, with a balloon payment at the end.

  8. Collateral. The property itself serves as collateral, reducing the lender’s reliance on the borrower’s credit history.

Ways to Get the Money

  1. Lump Sum Disbursement. Upon loan approval and closing, borrowers typically receive the entire loan amount as a lump sum payment. This allows for immediate access to funds for property acquisition or renovation.

  2. Draw Schedule. For larger projects or renovations, lenders may offer a draw schedule. Funds are disbursed in stages as specific project milestones are met. Borrowers submit requests for funds, along with documentation of completed work, and receive payments accordingly.

  3. Escrow Account. Some lenders may establish an escrow account to manage loan funds. Funds are held in the account and released as needed for project expenses, such as contractor payments, materials, or other approved costs.

Best Places to Get a Hard Money Loan

HouseMax Funding, launched in 2017, is an Austin-based real estate lending company rapidly expanding its hard money financing services nationwide, catering to both urban and suburban communities. Offering borrowers quick rate quotes and a streamlined prequalification process, applicants can expect efficient service, with customer support available via phone and email during weekdays. With accessibility in all 50 states and Washington, D.C., HouseMax Funding simplifies the application process, requiring essential financial documents and property details to begin the journey toward securing funding.

Easy Street Capital, headquartered in Austin, Texas, positions itself as a go-to option for swift real estate financing solutions, boasting a remarkable ability to review applications and provide loan term sheets within 24 hours. Specializing in blanket loans and short-term rental properties like Airbnbs and VRBOs, Easy Street Capital caters to a diverse clientele. However, it's worth noting that the company operates in 42 states and Washington D.C., excluding Arizona, Minnesota, Nevada, New York, North Dakota, South Dakota, and Utah. Customer service is accessible during standard business hours for both its Austin and West Coast offices, ensuring timely assistance for potential borrowers.

Express Capital Financing (ECF), a national lender, stands out with its array of financing options, including hard money, bridge loans, fix and flip loans, and small-balance commercial loans. Boasting competitive rates, terms, and fees, ECF emphasizes a streamlined borrowing process with quick turnaround times and high customer satisfaction. Operating in 47 states and Washington D.C., with exceptions for Nevada, South Dakota, and North Dakota, ECF prioritizes accessibility and efficiency. Applicants can initiate the application process online, where eligibility and feasibility are promptly assessed, providing preapproval within 24 hours for qualifying individuals.

RCN Capital, established in 2010, offers a comprehensive range of hard money financing solutions for non-owner occupied residential and commercial properties, including purchase and refinance loans, renovation project financing, and bridge loans. Geared towards real estate professionals, commercial contractors, developers, and small business owners, RCN Capital provides extensive support and resources, including partnerships with Tax Hive for business tax consulting services. While available in 45 states and Washington D.C., RCN Capital aims for nationwide coverage, excluding Alaska, Nevada, North Dakota, South Dakota, and Vermont. Customer service operates during standard business hours, offering assistance to borrowers navigating the financing process.

Things to Pay Attention To

  1. Interest Rates and Fees. Pay close attention to the interest rates and fees associated with the loan. Hard money loans typically come with higher interest rates and upfront fees compared to traditional loans. Ensure you understand all the costs involved, including points, origination fees, and closing costs.

  2. Loan Terms and Repayment Schedule. Review the loan terms carefully, including the repayment schedule and any balloon payments. Understand the duration of the loan and when payments are due. Consider whether the repayment schedule aligns with your project timeline and financial goals.

  3. Loan-to-Value (LTV) Ratio. Understand the loan-to-value ratio required by the lender. A lower LTV ratio means a higher down payment requirement and less leverage. Ensure you have sufficient equity in the property to meet the lender's requirements.

  4. Down Payment and Equity. Be prepared to make a substantial down payment or have significant equity in the property. Hard money lenders often require a down payment of 20% to 30% or more. Ensure you have the necessary funds available to meet this requirement.

How to Repay a Hard Money Loan?

  1. Understand Your Mortgage Terms. Familiarize yourself with the terms of your mortgage, including the interest rate, loan amount, loan term, and any prepayment penalties or other fees. Determine the frequency of mortgage payments (e.g., monthly, bi-weekly) and the due date for each payment.

  2. Set Up a Payment Method. Consider setting up automatic payments through your bank or mortgage servicer to ensure timely payment each month. Explore online payment options provided by your lender or servicer for convenience and ease of use. If preferred, you can also mail payments to the address provided by your lender, ensuring they are received by the due date.

  3. Consider Additional Payments. Determine if you have the ability to make extra payments towards your mortgage principal to pay down the loan faster and save on interest. Explore the option of making bi-weekly payments instead of monthly payments to accelerate the repayment schedule.

  4. Communicate with Your Lender. Keep your lender informed of any changes to your financial situation that may impact your ability to make mortgage payments. If you encounter financial hardship, such as job loss or medical expenses, contact your lender to discuss potential options for assistance or loan modification.

Reasons for Getting Rejected for a Hard Money Loan

  1. Insufficient Equity or Down Payment. Hard money lenders typically require a significant equity stake or down payment, often 20% to 30% of the property's value. If you cannot meet this requirement, your loan application may be rejected.

  2. Poor Credit History. While hard money lenders focus less on credit scores than traditional lenders, a severely damaged credit history may still lead to rejection. Lenders may assess your creditworthiness and financial responsibility, and a history of defaults or bankruptcies could be red flags.

  3. Unfavorable Property Appraisal. The property's value is crucial in securing a hard money loan. If the appraisal does not support the loan amount or if the property has significant issues affecting its value, the lender may reject the loan application.

  4. Inadequate Exit Strategy. Hard money lenders want assurance that you have a viable plan to repay the loan. If your exit strategy is unclear, unrealistic, or deemed too risky, the lender may be reluctant to approve the loan.

  5. Unstable Income or Cash Flow. Lenders assess your ability to repay the loan based on your income and cash flow. If you cannot demonstrate stable income or sufficient cash flow to cover loan payments, your application may be rejected.

Alternatives

  1. A personal loan is an unsecured loan that can be used for various purposes, including home renovations or purchases. Personal loans typically have fixed interest rates and repayment terms, providing predictability for borrowers. While not secured by the property, personal loans may have higher interest rates compared to mortgages.

  2. Peer-to-peer lending platforms connect borrowers with individual investors willing to lend money. Borrowers may find competitive interest rates and flexible terms through peer-to-peer lending, depending on their creditworthiness. Peer-to-peer lending may offer an alternative to traditional mortgage financing for certain borrowers.

  3. Some retirement plans, such as 401(k)s, allow participants to borrow against their account balance for various purposes, including home purchases or renovations. 401(k) loans typically have lower interest rates compared to other credit products and may not require a credit check. Borrowers must repay the loan according to the plan's terms or face penalties and taxes.

  4. FHA loans are government-backed loans designed to help homebuyers, including real estate investors, with lower down payment requirements and more lenient credit qualifications. These loans may be suitable for certain investment properties, such as multi-unit dwellings.

Editorial Opinion

Hard money loans serve as a valuable financing option for real estate investors seeking short-term funding for property acquisitions, renovations, and other investment projects. While they offer quick access to capital with less emphasis on credit scores and financial histories, their higher interest rates and fees should be carefully weighed against the benefits they provide. For investors with sufficient equity and a clear exit strategy, hard money loans can facilitate timely investment opportunities, but it's essential to understand the associated risks and explore alternative financing options to make informed decisions aligned with individual financial goals.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Mortage Lender

  1. Check Associations. Look for lenders who are members of reputable organizations, such as the Mortgage Bankers Association (MBA). Membership in these organizations can indicate a higher level of reliability and professionalism.

  2. Review Terms and Conditions. Carefully examine all the terms and conditions of the mortgage contract. Pay special attention to details like the loan term, fixed vs. variable interest rates, and any prepayment penalties.

  3. Interest Rates and Costs. Scrutinize the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the mortgage, including closing costs, origination fees, and any other charges.

  4. Right of Rescission. Remember you can utilize your right of rescission, which typically allows you to cancel the mortgage within three days after signing the agreement. Additionally, use the "cooling-off" period to thoroughly review the contract and make an informed decision before finalizing the mortgage agreement.

  5. Compare Offers. Shop around and compare offers from multiple lenders to find the best rates and terms that suit your financial situation.

Additional resources

FAQ

What credit score is needed for a hard money loan?

The credit score needed for a hard money loan typically varies depending on the lender and the specific loan requirements. Unlike traditional mortgage lenders that heavily weigh credit scores in their decision-making process, hard money lenders often prioritize the value of the property being used as collateral. While a good credit score can enhance your chances of approval and potentially secure more favorable terms, many hard money lenders are willing to work with borrowers with lower credit scores or less-than-perfect credit histories. Instead, they focus on the property's value and the borrower's equity, offering a financing option for individuals who may not qualify for traditional bank loans due to credit challenges.

What are the risks of hard money lending?

Despite their benefits, hard money lending carries inherent risks for both lenders and borrowers. For lenders, the primary risk lies in the potential for borrower defaults, property devaluation, or insufficient collateral to cover the loan amount in the event of foreclosure. To mitigate these risks, hard money lenders often impose higher interest rates, fees, and more stringent loan terms. For borrowers, the main risk involves the higher cost of borrowing associated with hard money loans, including elevated interest rates, upfront fees, and shorter repayment periods. Additionally, failure to repay the loan according to the agreed-upon terms could result in the loss of the property and damage to the borrower's credit score.

What is the difference between a bank and a hard money mortgage?

The key difference between a bank mortgage and a hard money mortgage lies in the lending criteria, approval process, and terms offered. Traditional loan options typically require extensive documentation, thorough credit checks, and adherence to strict lending guidelines. These loans often have longer repayment periods, lower interest rates, and more favorable terms, making them suitable for long-term financing of residential properties. In contrast, hard money lenders tend to focus less on borrower creditworthiness and more on the value of the property being used as collateral. They offer quicker approval processes, shorter repayment periods, and higher interest rates, making them ideal for real estate investors seeking short-term financing for fix-and-flip projects, property renovations, or time-sensitive investments such as construction loans.