Hard money lenders are private investors that provide hard money loans, rental loans, and lines of credit to borrowers. Borrowers use hard money loans, also known as bridge loans, to purchase real estate or finance large expenses quickly by using their property as collateral.
Business owners typically turn to hard money loans when they are unable to secure conventional loans due to a low credit score, or are undergoing foreclosure or bankruptcy.
Unlike traditional loans, hard money loans are not issued by conventional lenders or banks, but rather by private investors or companies. Interest rates are typically higher and terms are shorter, but qualifications are more flexible and investors usually fund within 15 days.
Hard money loans are commonly used by fix-and-flip investors — real-estate investors that buy a house, renovate it and resell the property later at a profit.
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Why We Chose LendingHome:
LendingHome offers bridge loans to house flippers. Their process is simple and fast, and they offer reliable loan options to borrowers looking to renovate a wide range of property types.
LendingHome has a wide variety of loan options. They range from a minimum of $75,000 to a maximum of $2,000,000. They are 12-month interest-only loans, and can be extended for three months. Their interest rates start at 7.5%, with closing fees at $499.00.
Things to Consider When Evaluating Hard Money Lenders:
- Find a local lender. Local lenders tend to offer more flexibility with their loans than nationwide lenders. Moreover, most money lenders will want to inspect the property, making it an easier process if you search locally.
- Ensure that they are licensed. Hard money lenders are required to be licensed by their state's Department of Real Estate and other agencies such as the Nationwide Mortgage Licensing System and Registry. Check that the hard money lender is registered with these entities first.
- Avoid hard money lenders with high default rates. Lenders with high default rates typically have predatory underwriting principles. Choose a lender with a low default rate.
Best Hard Money Lenders:
Hard Money Lender
A smooth, transparent online process that transfers funds without delay.
8 - 12%
Offers a diverse range of loans to nearly every property type. Borrowers are not required to have a minimum FICO rating.
Contact the company for a quote.
Offers reasonable interest rates, although there are a host of unadvertised costs, including a hefty application fee.
A fast and simple loan process that offers pre-funding and low minimum investment, although they only offer loans to accredited investors.
6 - 12.5%
Offer fast and easy loans and don't require borrowers to submit income verification or tax returns.
Up to 90% of cost
A good hard money lender that does not require a minimum credit score, although they don't lend property loans of more than $100 million.
7 - 11.5%
A good lender for rehab specialists, with an easy application process and flexible loan options.
1.25 - 1.5% per month / 7.99%
Offers competitive interest rates with no pre-payment penalties or minimum down payment.
10.99% paid monthly
Targets rehab specialists and finances purchase and repair costs. Borrowers have 12 months to sell or refinance their properties.
8.5 - 12%
A good bridge loan lender that does not place emphasis on credit scores when determining loans.
Contact the company for a quote.
Specializes in the purchasing of distressed single-family residential properties. They do not lend to first-time home-buyers.
10.99 - 12.99%
Only cater to North and Central Texas. They offer up to 100% rehab funds.
Facilitates an easy loan process and makes money accessible to foreigners, the self-employed, and low-credit borrowers.
8.99 – 14.9%
A fast and simple application process with access to money in 7-10 days.
Contact the company for a quote.
Offer a fast and easy process with access to funds in under 10 days.
How do hard money loans work?
Hard money loans are short-term loans that are secured by property. Hard money lenders calculate your loan by dividing the amount borrowed by the value of your property. This is known as the Loan-to-Value ratio (LTV).
Lenders will either require a 10-15% down payment or will fund the borrower at an After Repair Value of 60-70%.
Hard money loan terms are typically 12 months, but can last anywhere from 1-5 years. During this time, you will only pay the monthly interest which ranges between 7-20%, and an upfront lender fee of 1-10%.
Do hard money lenders require down payment?
The majority of hard money lenders require a down payment ranging from 10-15% of the LTV, depending on your credit score and past projects.
How much do hard money lenders charge?
Hard money lenders charge interest rates between 7-20%, lender fees between 1-10%, and loan origination fees that vary across the board.
Are hard money loans a good idea?
As with any loan, there are pros and cons to borrowing from a hard money lender.
Hard money loans offer convenience, quick turn-around, flexible terms, and the ability to use your property as collateral. Also, lenders don't base loan amounts on your creditworthiness like mainstream financial institutions.
On the downside, hard money loans have higher interest rates and origination fees than conventional loans, and the re-payment terms are shorter.
How do you qualify for a hard money loan?
- Have a down-payment of 20-40% of the property value, depending on the lender.
- Have the necessary cash-reserves to make the monthly loan repayments and pay for any additional costs.
- Have architectural plans for the property and detailed budgets for construction and/or renovation.
- Know the value of the area where your property is based.
- Having experience as a real-estate developer will count in your favor.
How much do you have to put down on a hard money loan?
This depends on your chosen investor, but you will typically have to fund 20-40% of the purchase price, depending on whether it's a residential or commercial property. However, some hard money lenders do lend 100% of the purchase price.
Can I get a hard money loan with bad credit?
Yes. The benefit of securing funds through hard money lenders is that they lend based mostly on your collateral and not your credit score.
How can I get a hard money loan for a flip?
- Write a business plan for the property you plan on purchasing.
- Put together an estimate of the renovation costs.
- Ask family and friends for a loan, or take out a small business loan.
- If you're unable to secure a business line of credit, opt for a hard money loan.
- Build your personal network to aid with future house flips.
Is hard money lending safe?
Hard money lending is considered a risky undertaking due to higher interest rates and shorter terms compared to traditional loans. However, hard money lending can be safe if done the right way. If you need a short-term loan and are unable to approach traditional mortgage lenders, then a hard money loan may be the best option for you, as long as you're able to repay the loan within the term period.
Can you refinance a hard money loan?
Yes, there are several ways to refinance a hard money loan:
- If your credit rating has improved, get a fixed mortgage.
- Get a subprime mortgage loan.
- If you have built up equity in your home/property, and have a good credit score, apply for a home-equity loan.
- If your hard money loan was small to begin with, consider getting a cash advance to pay off the balance.
What is a hard money loan in real estate?
In real estate, fix-and-flip investors take out hard money loans to finance a property, renovate it, and sell it at a profit, allowing them to pay off the loan within a few months or a year.
Is a hard money loan considered cash?
No. Hard money loans are still considered loans, as they are subject to approval, property appraisal, and other factors.
Who are the best hard money lenders in Houston?
How can I find hard money lenders near me?
See our list of the top 15 Hard Money Lenders nationwide.