Investors use hard money lending because it's the best financing alternative to secure funds. It's asset-based funding and is one of the most straightforward loans to get approved. Hard money loans give investors flexibility with numerous financing options, direct underwriting, fast online approvals and quick 5 days to closings.
Close more deals faster.
When traditional banks say No, Hard money says YES.
It's ideal for rehabbing and flipping and
eliminates seasoning issues with probates and foreclosure properties.
It's also an excellent match for buying bulk REO packages that you
intend to break apart and wholesale to other investors.
It's the perfect type of funding for single-family homes and small multifamily properties. Use it to buy an under performing rental property then rehab, rent, make it cash flow, and sell it to an investor as a turn-key investment. Many investors like turn-key properties because there are no bidding, no waiting, no stress, all the work has already been done and everything is in place.
The hard in hard money refers to the hard asset (real estate) as collateral instead of your personal credit.
It's asset-based funding at it's best. The main criteria that a lender uses to qualify the loan is the property's information- not the investor. They base the approval on property valuation, condition - the cost of repairs, time of rehab, and the deal's profitability. Hard money loans cover non-owner occupied, single-family, multi-units, commercial, and land.
No. Because the property is qualifying for the loan - not the investor or your investment business. No tax returns are needed, no credit checks or bank statements.
No down payment is needed because the loan on the property will be for 80% of the after repair value (ARV). The equity is sitting in the property and creates secure collateral for the lender. The lender requires you to have insurance on the property. Be a smart professional investor always carry insurance.
How Are Hard Money Loans Calculated?
Lenders base the amount they will loan on The Loan to Value Ratio.
(LTV) will be between 65-85% of the value depending on the property's condition and location. LTV is calculated using two different methods, the current value of the property or after repair value (ARV).
Do not scream like a little girl because of fees and high interest rates. Typically 6.99-9.5%. Like all conveniences, it's pricey. But it's tax-deductible. Just think of it this way- you're buying money, and it's a cost of doing business.
Also included is a loan origination fee which is 1.875%. But this % will vary with different lenders.
Most hard money loan periods are for 1to 3 years. And some have a prepayment penalty between 2-4%.
Almost all hard money loans are monthly interest-only payments and a balloon payment at the end of the loan.
Some of these loan costs and terms can be negotiated down, especially, if you are a repeat borrower.
give yourself extra credibility when applying for hard money, analyze
the deal and have the numbers broken down on paper. Include a complete
list of repairs and holding costs. Describe your exit strategy and
construct a timeline in which the project will be completed.
Both of these software programs - Investment Business software and Rehabber software will analyze, estimate repairs and compile all the reports that a hard money lender will want to see. With these reports, you'll present like a professional and position your deal for approval.
A proof of funds letter shows that you have the funds available to you to purchase the property. It makes you a buyer with power.
The hard money lender takes the property. Hard money loans are non-recourse loans; they foreclose, you surrender the property, and they take the property—end of the story. Nothing happens to you. They will not report the foreclosure on your credit, and it does not affect your credit score.
Although it might cost more, hard money lending will allow you agile maneuverability and quick action. You'll already have the deal done before most investors can even submit a contract.