Hard Money Loan for Beginners

5 Replies

I have a few questions about hard money loans such as:

How does one approach a hard money lender? 

What kind of preparation is needed before reaching out to a hard money lender

Are hard money lenders worried about credit scores and if so what is the average score needed to qualify for a hard money loan.

What is the average interest rate you can expect when working with a hard money lender.

And lastly where could you search to find out more information about working with hard money lenders.

Check out the resources tab here on Bigger Pockets, they have a list of hard money lenders per state and most have websites with all their requirements.  

But, if you have a property under contract and need financing. I would suggest you upgrade to pro here on bp. 

Create a detailed summary of the project ( use the wholesaling calculator under the analyze tab) and most your property on the Marketplace with  a "need private money" headline.  Private money is much better that hard money and you usually don't have to pay points and junk fees.

Thank for the response Ericka, I have since reviewed the resources tab here and I'm beginning to comply a list of the hard money lenders. I don't currently have a property under contract but I hope to soon thank you again for your response. 

@Rasheed Chambers

I am just beginning the process as well working with hard money lenders. I think the biggest thing is finding a deal that they like. HML's are all about the numbers. Your experience and credentials do come into play but I think if the right deal was presented to them they would be able to hedge their risk.

I have poor income only 30k a year. Great credit ~790. Only one liability, my car. 

However I have no experience doing the flips, finding the contractors to do the work etc, making sure the work is done to code, etc. 

I think if I found a deal that made sense the HML would know someone interested in partnering with me. Which would get my foot in the door.

Also there is partnering with a friend or family member who has better income to offset the risk. I may have to do this. 

Hard Money usually want a min credit score. Somewhere ranging from 620 - 660.

Interest rates vary, but with no experience and little no no business line of credit history, you are looking at 12-15%, to be paid back in interest only payments.

HML usually will cover 80% of total project investment, some will do 90% depending on state.

Expect to also pay 2-4 points of any money you do get, along with $350-$500 for inspection/appraisal by HML.

You will usually be expected to give credit report/check, asset and financial sheets, along with income verification. 

To continue...HML will lend based upon your ability to sustain the debt AND the actual property itself. Which is why they do appraisals - to verify it falls within their investing criteria.

Upon acquiring the property, you will only get the money in "draws". That means, you get reimbursed for work completed (reimbursed if you come out of pocket, but you should be able to avoid this problem). 

Once you apply for your funds, the HML will come out and inspect what you say has been completed. Funds will be released based on % of work completed.

Send me a message if you need any help.

There aren't any hard and fast rules for what you asked, different lenders will vary greatly.

My best lender is the best I've seen out there. They won't pull credit if you borrow in an LLC. 12% or so on rate with a 2.5% origination at a 70% LTV for a first timer. I'm at 8% and 2% on that same loan because I've done 100+ rehabs and their risk is less.

Loaning 90% of purchase, 100% of rehab is the pitch, but you'll need more money than that to do the deal start to finish since it funds net of the origination and how they do the draws. If you want to walk through a deal give me a call, I'll let you know what the competition is doing too.

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