10 Questions on Hard Money Loans

by | BiggerPockets.com

  1. What is the process for Hard Money Loans?
    Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

  2. What is the interest rate?
    The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

  3. What Loan-to-Value are Hard Money Lenders looking for?
    Typically a loan does not exceed 70% of the after-repaired-value (ARV). This figure is calculated by an appraiser and consideration of repairs.

  4. How long is the loan for?
    Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.

  5. What are the costs?
    All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

  6. Can I get money pay for repairs?
    Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.

  7. Does my credit matter?
    Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.

  8. Do I need to put any money down?
    In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.

  9. Can interest to be deferred to the end of the loan?
    Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.

  10. How does Hard Money compare to a traditional non-owner occupied investor loan?
    This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.

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  1. Nice article, I have used a hard money loan before. Not something that I would want to hold for more than a few months, but it worked well for a investment property that needed to be closed on in 6 days or it would be foreclosed on.

  2. Too bad hard money is drying up. It’s getting REALLY hard for borrowers to get ANY type of loan. The market right now is getting much worse in many parts of the country. Best of luck out there if you’re looking for funding!

  3. Michael Murray on

    We sometimes make hard money loans. The information given has been quite good and quite accurate. Hard Money is sometimes easier to get (no qualifying can be available with good security)is much Harder as to terms i.e. interest, ARV, Points, Fees, overall cost compared to so called conventional or soft money…where terms and conditions are softer or easier on the borrower often because there are safeguards built into soft money loans that are significantly less risky than are the typical Hard Money Loans. Remember that Hard Money lenders take higher risks so they expect higher returns to offset those real risks.

  4. Perhaps the best part of a private money loan is that there is no credit check and no subsequent hit on your credit report. For an investor who likes to turn lots of deals, having to prove creditworthiness each and every time gets to be a bit of a hassle.

  5. Thanks for answering these questions about hard money loans! I didn\’t realize that this type of loan typically funds within 72 hours of receiving the final docs from the Title Company. That\’s awesome, I know that sometimes when you need a loan, you need it quickly! I also really appreciate the explanation here about how credit can affect this process. It\’s good to know that the actual score doesn\’t matter so much as whether or not you\’ve got a generally good credit history.

  6. pierenzo giannelli

    hello, I am interested in knowing the type of closing documents that are signed at the closing, like the promissory note, and the mortgage document. are they the same as in a conventional loan or are they written different. what kind of mortgage do we get? what kind of clauses do they usually have on the document? do we pay mortgage insurance? can anybody have some samples of the docs? thank you

  7. The post was really helpful. I’m finding some hard money lenders for getting capital to buy some land. The points discussed here are very useful. I had confusions about loan period and time taken to get the money after submitting of documents. I was in dilemma for different interest rates offered by different lenders.

  8. Awesome post! I wanted loan for construction purpose but conventional money lending process would have wasted much of time and I wanted it as soon as possible. So i opted for hard money loans. I had many confusions about the entire process but the this post was of great help. Now I’m definitely looking for some hard money lenders.Thank you.!

  9. I wanted loan for real estate purpose but the old process followed for money lending process I just worst and a total waste of time and money. Then I came to know about hard money loans from my friends and opted for the same. Now I’m looking for private hard money lenders and found this post as a great help in this area. Thank you for the guidance.

  10. Thanks for pointing out that hard money loans provide investors access to capital to purchase investment properties. You also mention that they can fund quickly. I think it’s a good idea to choose a money lender that has experience in the types of properties that you are wanting to invest in.

  11. shaquay david on

    Can anyone tell me what fees/expenses I will be expected to pay out of my own pocket before receiving the loan? What are the cost for escrows for taxes and insurance

  12. BJ Ralphs

    I saw somewhere that the interest is paid monthly – If I have a $200,000 Hard Money Loan @ 8% -How would the payment structure be set up – Interest only ? Paid on the amount of money that is actually being used as the re-hab is moving along?

    For this scenario – if I took 3 months to rehab the house – How much would I pay each month. Not including any of the points or original loan costs.

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