{"id":151947,"date":"2023-05-12T10:12:17","date_gmt":"2023-05-12T16:12:17","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?post_type=phase-level-3&#038;p=151947"},"modified":"2023-05-15T13:10:03","modified_gmt":"2023-05-15T19:10:03","slug":"hard-money-loan","status":"publish","type":"phase-level-3","link":"https:\/\/www.biggerpockets.com\/blog\/hard-money-loan","title":{"rendered":"Hard Money Loans: The Costs And Benefits"},"content":{"rendered":"\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<figure class=\"wp-block-image size-large has-level3-rounded-figure\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"517\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1024x517.jpg\" alt=\"house cutout next to calculator\" class=\"wp-image-148988\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1024x517.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-300x151.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-768x388.jpg 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1536x775.jpg 1536w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-2048x1034.jpg 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Discover how to use<mark style=\"background-color:rgba(0, 0, 0, 0);color:#089f4b\" class=\"has-inline-color\"> hard money loans.<\/mark> <\/h2>\n\n\n\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC3714980996&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p class=\"wp-block-paragraph\">Hard money loans may not be difficult to get, but they can be expensive. Despite the cost, they\u2019re an essential tool for investors. Knowing when to use hard money and how to get it is critical. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here\u2019s everything you need to know about using <a href=\"https:\/\/www.biggerpockets.com\/real-estate-companies\/hard-money-lenders?utm_source=blog\" target=\"_blank\" rel=\"noreferrer noopener\">hard money loans<\/a> for real estate.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">What is a Hard Money Loan?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Hard money loans use real assets as collateral instead of relying on the borrower\u2019s financial history. Typically the property you\u2019re buying is used as collateral, but other examples include retirement accounts or other real estate properties you own.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money\" target=\"_blank\" rel=\"noreferrer noopener\">Hard money loans<\/a> are a way to borrow money without jumping through the hoops of traditional lenders. They often have more flexible terms than loans provided by conventional banks because private lenders offer them.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How Does a Hard Money Loan Work?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As opposed to a traditional lender, a hard money lender is much more interested in the asset than the borrower who\u2019s borrowing against that asset. And thus, as you might expect, a hard money loan is usually quite a bit more expensive than a standard bank loan.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Banks normally have very strict and arduous criteria for traditional mortgages, especially mortgages on an investment property. This is particularly true once you\u2019ve acquired over ten properties in your name and are no longer eligible for a Fannie Mae\u2013backed loan.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When it comes to owner-occupied properties, the type of loan that banks are interested in is of the cookie-cutter variety. However, most real estate investors don\u2019t make money with cookie-cutter properties, so <a href=\"https:\/\/www.biggerpockets.com\/blog\/2006-12-08-what-does-everyone-mean-by-hard-money\" target=\"_blank\" rel=\"noreferrer noopener\">hard money lending<\/a> can be extremely useful.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While the hardest money is lent out for investment property and residential property, hard money lenders offer loans on multifamily apartments, commercial office buildings, industrial property, retail, and even on items that aren\u2019t real estate investments, such as equipment purchases.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">At first glance, <a href=\"https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money\" target=\"_blank\" rel=\"noreferrer noopener\">hard money and private money loans<\/a> appear to be the same, but they are quite different.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hard money lenders are effective brokers for short-term loans, mostly on real estate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Private lenders, on the other hand, can be just about anyone who has money. A private loan is relationship-based; the lender could be a private company, friend, or family member.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Many investors use hard money as an integral part of their financing strategy\u2014particularly those who need loans to fix and flip. It\u2019s a great tool to get money quickly if you know how to use it in the right way.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Hard Money Lending and Real Estate<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As noted above, the standard terms for hard money loans are expensive and can come with higher interest rates. But since these are short-term loans, they can still be absorbed with room for a healthy profit. While each hard money lender is different, normally, real estate loan terms look like this.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Loan to value\/loan to cost 65%\u201385%.<\/li>\n\n\n\n<li>Lend on rehab costs: yes.<\/li>\n\n\n\n<li>Interest rate: 12%\u201316%.<\/li>\n\n\n\n<li>Points: 2-6.<\/li>\n\n\n\n<li>Other fees (will vary by lender):<\/li>\n\n\n\n<li>Appraisal\/broker\u2019s price opinion.<\/li>\n\n\n\n<li>Title fees.<\/li>\n\n\n\n<li>Application fee.<\/li>\n\n\n\n<li>Inspection fee.<\/li>\n\n\n\n<li>Document processing fees.<\/li>\n\n\n\n<li>Term: six months to one year.<\/li>\n\n\n\n<li>Prepayment penalty: usually none.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">But the loan amount ranges widely from lender to lender. For example, Taryn Kendrick, president and co-owner of Kansas City-based Worcester Financial, notes that while they do not charge an application fee or document processing fees, many lenders do. A broker\u2019s price opinion (BPO) usually ranges from $150 to $250, and an appraisal can range from $400 to $650 (or substantially more if it\u2019s a multifamily or commercial property).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The loan amount also depends on the value of the property. Indeed, while Worcester Financial goes up to 75% of the loan-to-value (LTV) or loan-to-cost (LTC), they are willing to loan up to 65% of the after-repair value (ARV) if that value is higher.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This means that on rare occasions, they have financed 100% of the cost of the property. This only happens for particularly good deals, however. Don\u2019t go into a deal expecting this.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">And, to reiterate, what each hard money lender is willing to do is different. Some, for instance, may be willing to use other assets (say, another property) to \u201ccross-collateralize\u201d a loan. This type of flexibility is another advantage of hard money lending.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Other hard money lenders may max out at 65% LTV, while some may increase to 85%. Remember to clarify whether a lender is referring to the LTV (what the property is worth) or the LTC (how much money you will be putting into the property).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Regardless, you will almost always need to find a way to raise the down payment. Potential sources include savings, a partnership, or a personal loan from friends or family. In certain cases and with some lenders, another free and clear property can be cross-collateralized.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The bottom line is that hard money lenders are generally more flexible than banks. Real estate investors have a better chance of negotiating adjustments to the terms or repayment schedule with a hard money lender than they would with a bank.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">What To Know About Hard Money Lenders<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As with any business, you must be careful about hard money lenders. The key thing is to vet them in the same way you would any other key team member. They will certainly be vetting you.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You will also need to consider your situation to find the best hard money lender for your needs. Is this your first property? Or are you an experienced flipper? Are you looking for someone focused on your needs? Someone fast? Which money lenders can you afford? Which hard money lender has the best reputation in your area?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These are some of the questions you should ask yourself when looking for a lender.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Don\u2019t be afraid to ask for referrals, either. Good lenders won\u2019t have a problem providing them.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Pros and Cons of a Hard Money Loan<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Given that hard money lenders are more expensive than banks; it makes sense to go the hard money lending route if you can\u2019t get a bank loan upfront. Traditional purchases or properties that don\u2019t need much rehab are not the best candidates for hard money loans.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On the other hand, properties that you intend to flip or need substantial rehab are good candidates for hard money lending. This is particularly true if you have some hiccups on your credit report or don\u2019t have a W-2 income.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Banks are obsessed with W-2 income. While many will lend to full-time real estate investors, many will not\u2014at least not to anyone without a long, proven track record, which newer investors obviously don\u2019t have yet.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The pros and cons of hard money loans depend on your situation, but let\u2019s go through them:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hard money loan pros<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>They\u2019re quick.<\/li>\n\n\n\n<li>The loan review isn\u2019t as arduous as with banks.<\/li>\n\n\n\n<li>Borrowers who can\u2019t get a conventional loan often qualify.<\/li>\n\n\n\n<li>Properties that need too much work for a bank to be interested in often qualify.<\/li>\n\n\n\n<li>They\u2019re available if a traditional loan falls through while the property is under contract.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Hard money loan cons<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The cost of the loan can be expensive, with high-interest rates and miscellaneous fees.<\/li>\n\n\n\n<li>They\u2019re risky to jump into since your property is collateral.<\/li>\n\n\n\n<li>Repayment periods are shorter.<\/li>\n\n\n\n<li>Some hard money lenders are after your money\u2014and lots of it.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Alternatives to Hard Money Loans<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">If you\u2019re unsure about hard money lending and its associated risks, you might be wondering if there are any alternatives to hard money loans for investors. There are several other options you can consider if you don\u2019t want to work with a hard money lender, including:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Home equity line of credit (HELOC)<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">With a HELOC, you can use the equity you have in your home as a line of credit without actually having to pull the equity out of your home. You\u2019ll borrow against the equity you\u2019ve built up, turning your asset into collateral that you can use to invest in another property. Of course, doing this means you\u2019ll have a lien against your home, but you\u2019ll pay this down over time and hopefully make money off your investment in the meantime.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Cash-out refinance<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A cash-out refinance when you actually pull out the equity you\u2019ve built up in your home and use it to purchase an asset. It\u2019s basically taking out another mortgage or increasing the mortgage you already have on your home. This can be a good move if you don\u2019t owe much on your home or the interest rates are better at the time you want to refinance and pull cash out of your home\u2019s equity. There are fees associated with a cash-out refinance, which will increase your monthly mortgage payment, so consult an adviser to ensure this is the right move for you.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Home equity investment products<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Home equity investment products are another alternative to hard money lending. These products also allow you to use the equity you\u2019ve acquired in your home, but you won\u2019t have to worry about paying the money back right away. This gives you flexibility with your investment plan. You can often get the money you need quickly when you opt to use a home equity investment product.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Family or friends<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Family and friends with extra cash may be willing to loan you money to purchase a real estate investment property. If you\u2019re a first-time investor, this can be an especially appealing route, as you can negotiate the best terms for you. A friend or family member may be more willing to work around your investment needs and be more lenient with payback terms and conditions. It\u2019s likely that you can get a better interest rate from friends and family than you can from a traditional lender or one who offers <a href=\"https:\/\/www.biggerpockets.com\/blog\/8-things-real-estate-experts-wont-tell-you-about-hard-money\" target=\"_blank\" rel=\"noreferrer noopener\">hard money loans<\/a>.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How To Get a Hard Money Loan<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For private investors, the best part of getting a hard money loan is that it is simpler than getting a traditional mortgage from a bank. The approval process is generally much less intense. Banks can ask for an almost endless series of documents and take several weeks to months to get a loan approved. Most hard money lenders can close a loan in only five to 10 business days.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is generally best to start building relationships with hard money lenders before you start making offers. This increases the likelihood of getting a deal done, as much of the groundwork has been laid before you need the money.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Many hard money lenders will also provide a conditional approval letter, which acts similarly to a bank\u2019s preapproval letter. Most sellers require it before they\u2019ll sign on the dotted line.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hard money lenders still have a loan application form to fill out. They also generally request two years of tax returns, two months\u2019 worth of bank statements, a schedule of your own real estate, a copy of your driver\u2019s license, and other personal information. They\u2019ll look at your credit score too.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">That said, there isn\u2019t nearly as much paperwork or detail as there is with a traditional loan. The main purpose is to make sure the borrower has an exit strategy and isn\u2019t in financial ruin. But many hard money lenders will work with people who don\u2019t have great credit, as this isn\u2019t their biggest concern.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The most important thing hard money lenders will look at is the investment property itself. Hard money lenders will request a BPO or an appraisal to assess the property\u2019s current as-is value or determine the ARV.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">They will also evaluate the borrower\u2019s scope of work and budget to ensure it\u2019s realistic. Sometimes, they will stop the process because they either believe the property is too far gone or the rehab budget is unrealistic.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, they will evaluate the BPO or appraisal and the sales and\/or rental comps to ensure they agree with the evaluation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So it\u2019s not as simple as filling out a form and pulling out money. But there is another advantage built into this process: You get a second set of eyes on your deal and one that is materially invested in the project\u2019s outcome at that!<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If a deal is bad, you can be fairly confident that a hard money lender won\u2019t touch it. However, you should never use that as an excuse to forgo your own due diligence.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s also important to note the occasional bad apple in the hard money lending realm is out there (just like every other industry), so make sure you find a reputable lender who you can trust. The best place to look for hard money lenders is in the <a href=\"https:\/\/www.biggerpockets.com\/companies\/hard-money\" target=\"_blank\" rel=\"noreferrer noopener\">BiggerPockets Hard Money Lender Directory<\/a> or your local Real Estate Investors Association. Remember, if they\u2019ve done right by another investor, they are likely to do right by you.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How Much do Hard Money Lenders Charge?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As noted above, the standard terms for hard money loans are expensive. But since these are short-term loans, they can still be absorbed with room for a healthy profit. While each hard money lender differs, normal loan terms look like this.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Loan to value\/loan to cost: 65%\u201385%<\/li>\n\n\n\n<li>Lend on rehab costs: Yes<\/li>\n\n\n\n<li>Interest rate: 12%\u201316%<\/li>\n\n\n\n<li>Points: 2-6<\/li>\n\n\n\n<li>Other fees (will vary by lender):<\/li>\n\n\n\n<li>Appraisal\/broker\u2019s price opinion<\/li>\n\n\n\n<li>Title fees<\/li>\n\n\n\n<li>Application fee<\/li>\n\n\n\n<li>Inspection fee<\/li>\n\n\n\n<li>Document processing fees<\/li>\n\n\n\n<li>Term: 6 months to 1 year<\/li>\n\n\n\n<li>Prepayment penalty: Usually none<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Still, the loan amount ranges widely from lender to lender. For example, Taryn Kendrick, president and co-owner of Kansas City-based Worcester Financial, notes that while they do not charge an application fee or document processing fees, many lenders do. A broker\u2019s price opinion (BPO) usually ranges from $150 to $250, and an appraisal can range from $400 to $650 (or substantially more if it\u2019s a multifamily or commercial property).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The loan amount ranges widely from lender to lender and depends on the value of the property. Indeed, while Worcester Financial goes up to 75% of the loan-to-value (LTV) or loan-to-cost (LTC), they are willing to loan up to 65% of the after-repair value (ARV) if that value is higher.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This means that on rare occasions, they have financed 100% of the cost of the property. This only happens for particularly good deals, however. Don\u2019t go into a deal expecting this.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">And to reiterate, what each hard money lender is willing to do is different. Some, for instance, may be willing to use other assets (say, another property) to \u201ccross-collateralize\u201d a loan. This type of flexibility is another advantage of hard money lenders.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Other hard money lenders may max out at 65% LTV, while some may increase to 85%. Remember to clarify whether a lender is referring to the LTV (what the property is worth) or the LTC (how much money you will be putting into the property).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Regardless, you will almost always need to find a way to raise the down payment. Potential sources include savings, a partnership, or a personal loan from friends or family. With some lenders, another free and clear property can be cross-collateralized in certain cases.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The bottom line is that hard money lenders are generally more flexible than banks. Applicants have a better chance of negotiating adjustments to the terms or repayment schedule with a hard money lender than they would with a bank.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How to Get Approved for a Hard Money Loan<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For private investors, the best part of getting a hard money loan is that it is simpler than getting a traditional mortgage from a bank. The approval process is generally much simpler. Banks can ask for an almost endless series of documents and can take several weeks to months to actually get a loan to the committee. Most hard money lenders can close a loan in only five to 10 business days.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is generally best to start building relationships with hard money lenders before you start making offers. This increases the likelihood of getting a deal done, as much of the groundwork has been laid before you <em>need<\/em> the money (ASAP!).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Many hard money lenders will also provide a conditional approval letter, which acts similarly to a bank\u2019s pre-approval letter and which many sellers require to sign on the dotted line.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hard money lenders still have a loan application form to fill out. They also generally still request two years of tax returns, two months\u2019 worth of bank statements, a schedule of the real estate you own, a copy of your driver\u2019s license, and other such things. They look at your credit score too.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">That said, there isn\u2019t nearly as much paperwork or detail as with a traditional loan. These things&#8217; main purpose is to ensure the borrower has an exit strategy and isn\u2019t in financial ruin. But many hard money lenders <em>will<\/em> work with people who don\u2019t have great credit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The most important thing hard money lenders will look at is the property itself. Hard money lenders will request a BPO or an appraisal to assess the property\u2019s current as-is value or determine the ARV.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">They will also evaluate the borrower\u2019s scope of work and budget to ensure it\u2019s realistic. Sometimes, they will stop the process because they either believe the property is too far gone or the rehab budget is unrealistic.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, they will evaluate the BPO or appraisal and the sales and\/or rental comps to ensure they agree with the evaluation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So, it\u2019s not as simple as filling out a form and pulling out money. But still, there is another advantage built into this process: You get a second set of eyes on your deal and one that is materially invested in the project&#8217;s outcome at that!<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If a deal is bad, you can be fairly confident that a hard money lender won\u2019t touch it. However, you should never use that as an excuse to forgo your own due diligence.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s also important to note the occasional bad apple among the hard money lenders out there (just like every other industry), which we will discuss how to avoid below.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Who is the Best Hard Money Lender?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As with any business, you must be careful about hard money lenders. The key thing is to vet them in the same way you would any other key team member. (They will certainly be vetting you.)<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You will also need to consider your situation to find the best hard money lender for you. Is this your first property, or are you an experienced flipper? Are you looking for someone focused on your needs? Someone fast? Which money lenders can you afford? Which hard money lender has the best reputation in your area?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These are some of the questions you should ask yourself when looking for a lender.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Don\u2019t be afraid to ask for referrals, either. Good lenders won\u2019t have a problem providing them.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The best place to look for hard money lenders is in the <a href=\"https:\/\/www.biggerpockets.com\/companies\/hard-money\" target=\"_blank\" rel=\"noreferrer noopener\">BiggerPockets Hard Money Lender Directory<\/a> or your local Real Estate Investors Association. Remember, if they\u2019ve done right by another investor, they are likely to do right by you.<\/p>\n<\/div><\/div>\n","protected":false},"featured_media":0,"template":"","categories":[],"class_list":["post-151947","phase-level-3","type-phase-level-3","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3\/151947","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/phase-level-3"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=151947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=151947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}