Hard Money Rates: What are you currently paying?

8 Replies

In general hard money lenders all tend to use the same factors as the most heavily weighted when determining pricing.  

1. # of investment properties purchased in the last x amount of years (each lender has a different length of look back)

2.  FICO score (some HMLs don't care, the ones with the best pricing will)

3.  Liquidity Levels (they're trying to see reserves + how many deals you could potentially do with them)

That being said, I've seen hard money style loans in TX as low as 6.75% for the most qualified with the more average range being in the 8-9% range.  However, there is no shortage of lenders charging 10% + for the same product. 

In terms of origination, it tends to vary with experience and loan size.  There will be a lot of loan officers ready to sell 3-4 points but if you keep digging you should find something for 2 or less if your file is clean. Having a loan under $100k might cause origination to creep above 2 even with the best HMLs. 

Hope this helps a bit but the HML availability and pricing varies wildly across the market. Some operate in surprisingly wild west fashion (learned from experience). Best to shop a few different places and compare TERM SHEETS or LOIs based on your supporting documents (not verbal offers from Loan Officers, many will get you in the door pitching floor rates you technically might not qualify for only to make this "realization" when you're a few weeks in and it's too late). 

7's. But in my mind, one of the most important things is speed of funds during the process. There is nothing worse than putting in a draw and waiting a week to get reimbursed. 

I'm paying 8% and 1-1.5 points on short term HMLs in Austin. This is a repeat business rate. Most lenders are asking/offering loans in the 10-12% + 2 points. Most will charge $600-$900 in legal doc preparation fees. Most HMLs will charge a processing fee that could vary from $695 to $1500 (that I'm not paying).

I'm presently a lot, A LOT!! more concerned with the legal terms I'm signing. And you should be too.

A month ago I had to cancel a 30-years fixed rate refinance HM loan at 5.25% the day before closing. They sent me their loan docs for review. They had questionable, over-reaching and (in my opionion) even downright illegal terms in their legal docs. A whole lot of investors probably don't bother to read fine print when it's spread over 100 pages of legal docs. But you better. 

To put it in a proper perspective, these 30 years fixed rate rental property HM loans are advertised as based on LTV / Fico / Rental cashflow with no tax returns, no personal qualifications, no DTI requirements, no financials but a couple of bank statements to show your liquidity.

Imagine finding clauses like these: 

1. You grant the lender an irrevocable power of attorney to control all your assets, sell them, tap into them - do as they please, while the lender explicitly disclaims (you release them from) all liability for any action, inaction or mistake they may make in doing so. What's more - that POA is there EVEN IF you are not in default on the loan.

2. You are required to provide annual tax returns and financial reporting (that you were not, when getting the loan approval.) If you don't provide such accounting, your interest goes up by 5% APR. So you're now at 10+% on your 30 years fixed rental loan. Great!

3. If you do provide annual financial accounting and tax returns - any substantial change in your financial situation puts you in default and gives the lender grounds for foreclosure.

4. If you even decide to borrow with a 2nd mortgage against your equity that you may have after owning a property a while - you are in default.

5. If somebody files a lien against you - you're in default.

And on and on...

On a short term HM loans  to fund a flip or similar I find that some of these HM lenders still put similar provisions in the docs. However, in this case you already have a plan to get rid of this loan by selling or refinancing into something else. 

You are at a less of risk for having your lender enforce some of these wild provisions... Unless your project goes south. Nobody plans for projects getting derailed. However, based on the number of rehab loans being foreclosed each month in the Austin metro - it's not a totally improbable event. So, pay attention what you sign no matter how much you want to get their money.

@Greg H.

We see a lot of volume, I used to broker HM and started doing some direct lending. 

The best I have seen is 7.25% on the fix and flip, 10% down, 100% rehab, up to 75% of the ARV. You have to be doing a lot of volume to get those rates, great track record, and good relationships. Points in the 1.75 range, again fluctuate on deal, experience, and relationship.

The average I'm seeing is in the 8.99% range on the fix and flip. 

Some lenders offer 100% financing on the buy side, they don't advertise it, but they will if your purchase appraisal comes 10% below of what you have it under contract for.

If you're brand new I regularly see 10.99% interest, 3 points, 80-85% of the purchase price. 100% of the rehab, up to 65-70% of ARV. They will discount the ARV for the risk.

And @Alex G. I would love to know who is putting that in their contracts? I've heard of local commercial banks calling the note due back in the savings and loan crisis, even when the borrower never missed a payment, and had good tax returns. But I agree with you 100%, no one plans to go south, some times are just bad and out of our control. Crazy to think there has been a handful of times like that in the last 30 years, still fresh in my eyes.

@Aaron Gordy Where have you seen the best draw process?  What are the turn times like?  Do they require a physical inspection to draw?

@Alex G. I imagine you get preferred pricing from your lengthy experience but where are you getting 8%, 1 pt, and no processing fees?

Those clauses seem pretty outrageous, do you mind sharing the name of the lender?