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 approvals and quick 7-10 days to closings.
Close more deals faster.
When traditional banks say No, Hard money says YES.
It's ideal for rehabbing and flipping and
eliminating 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 sell to investors.
It's the perfect type of funding for single-family homes and small multifamily properties. Use it to buy an underperforming rental property, rehab, rent, make it cash flow, then 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, and all the work has already been done.
It's an asset-based funding at it's best. The main criteria that a lender uses are 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. The 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 70-90% of the value. The equity is sitting in the property and creates secure collateral for the lender. The lender requires you have insurance on the property. Be a smart 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 9-12%. 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 varies. Most hard money loan periods are for 1to 3 years with a prepayment penalty between 2-4%. Along with monthly interest-only payments and a balloon payment at the end of the loan. However, some of these loan costs and terms can be negotiated down.
The monthly payment can be structured as interest only. And after establishing a trustworthy relationship and completing a few loans with the hard lender, you'll probably be permitted to pay the monthly interest at the end of the loan. It's especially true if your strategy is to buy, fix, and sell the property in the first 3-5 months.
To 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.
What happens if you default on a hard money loan?
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.