Before starting in real estate investing let’s go over some commonly asked hard money lending questions.
What is Hard Money?
Hard money loans are a specific type of asset-based loans that are secured by real estate collateral. Hard money loans are generally given through private investors or companies.
Who Uses Hard Money?
The main individuals who utilize hard money loans are real estate investors, developers, fix and flippers, and buy and hold investors. The ability for hard money lenders to fund much faster than a traditional bank helps those who are trying to acquire a property with competing bids, and sellers who want a quick close. In many situations, hard money lenders can issue funds in as little as 10 business days, while traditional banks have a wait time of 30-50 days for funding.
What is the interest rate?
Interest rates charged by hard money lenders can vary lender to lender and depend on the location of the property. For example, lenders in California are much more competitive with their rates and will usually offer lower interest rates compared to other areas of the US.
Overall, interest rates for the lenders in Bridge Loan Network’s Marketplace range between 5%-15% depending on the lender’s perceived risk of the loan and the location of the property. Due to the risk involved, hard money lenders have higher rates than traditional lenders.
How long is the loan term?
Hard money loans are generally all short-term loans, ranging from 6 to 18 months. Depending on the specific lender you choose, you can also find long-term loans in the 3+ year range to 30-year loans. Typically though, the investors who are using hard money are using them for the quick turnaround times and the ability to acquire, renovate, and sell a home all in a couple months. For investors who are looking to buy and hold a property, these short term loans are considered bridge loans, where investors refinance the property with a traditional lender who have longer terms.
What are typical Loan-to-Value ratios?
Loan-to-Value ratio, or LTV, is the amount of money hard money lenders can lend on a specific property. The LTV is determined by the ratio of the loan amount divided by the value of the property. Most hard money lenders can lend up to 60% to 75% of the property’s current value. Other lenders lend based off the After-Repair-Value (ARV) of the property. The After-Repair-Value of a property is the appraised value of the property once repairs are completed. Some lenders can offer up to 55% to 75% of the ARV.
Are there costs associated with Hard Money?
Lenders typically require Title Policy, Insurance, and Appraisal fees which are paid by the borrower, and some lenders may have application fees. There are currently no lenders in the Bridge Loan Network Marketplace who charge any upfront fees during the pre-approval and approval process such as an application fee. Though, the borrower is responsible for third-party fees such as appraisals or project feasibility studies.
How much does the credit score really matter?
Most hard money lenders do run credit checks, but mostly to look for the borrower’s ability to repay the loan. Typically, credit score requirements depend on the exit strategy of the investment. If the borrower intends to buy and hold rather than fix and flip the property, lenders will pay closer attention to FICO scores. Lenders may also review the borrower’s history to determine if there is a repeating pattern of poor financial management or if an isolated incident affected the individual’s credit.
Submit a free inquiry and the opportunity will be matched with our qualified and approved hard money lenders. The simple application portal digitalizes the lending process enabling brokers and borrowers to upload needed documents, authorize credit checks and have a full loan package for our lenders to review. Apply now!
