Everything You Need to Know About Hard Money Loans

Author: Catherine Way, Digital Marketing Manager for Prime Plus Mortgages

Prime Plus Mortgages is a licensed hard money lending company. We specialize in hard money loans, or HMLs, for developers, property flippers and buy-and-hold strategists. Hard Money Loan programs make private money available for small to medium scale projects.

The early bird gets the worm: the sooner you can find and close on a golden real estate opportunity the better. That’s why it’s surprising that more real estate investors don’t use hard money lenders. What a lot of house flippers and real estate investors forget is that money makes the world go round. Having fast access to funds isn’t a need, it’s the lifeblood of almost every real estate investment transaction in this modern age. Hard money loans make it easy to get funded quickly, and get a house flipped even faster.

What is a Hard Money Loan?

Simply put, hard money loans are loans that are based on capital rather than your credit. The lender uses the property value to determine the price of the loan, and if there is a default they use the property to ensure they don’t suffer any losses. These fast funded, asset-based loans provide funds to real estate investors for deals they need to close quickly. Borrowers typically have a difficult time finding hard money lending services with traditional banking institutions. Traditional banking institutions base loans of the lenders’ credit, which takes longer to be approved, leaving crucial deals in waiting.

Who Should Get A Hard Money Loan?

Real Estate investors, house flippers, and anyone looking to develop real estate, even homeowners can all benefit from hard money loans. Hard money lenders base their loans off the asset and resale value of a property, so getting approved for a loan is easy, if the property qualifies. Hard money loans are usually used for real estate investments, such as flipping a home or making large repairs to increase the value of a home. They are easier to obtain than traditional loans, but at higher rates, as they are short-term and designed for buyers that intend to sell the property quickly.

Hard Money Loan Details

Hard money loans are used for a vast range of properties, so—like all aspects of the loan—their structure can vary depending upon the circumstances. A down payment of 10 to 15 percent on new purchases is the norm for most hard money loans.  The interest rate of your hard money loan can fall anywhere between 12 to 16 percent depending on the tenure of the loan. Most of these loans are short term, with twelve months as the standard, but sometimes they are as short as six months. A reputable hard money lenders can often approve and fund within two days.

Why Use Hard Money Lenders?

Hard Money lenders can provide you with funds very quickly. The reason that hard money lenders are so quick to approve and fund real estate investments is that they are title based loans, focused on the value of your properties and their after repair value. This speeds up the approval process because they don’t rely on credit checks. While traditional lenders need proof of employment, credit history, and background checks, hard money lenders need only analyze the property to approve your loan. More specifically, most hard money lenders want to see a strong resale value and an investment that they can easily flip or turn a profit in case there is a default on the loan. Hard money lenders call this resale value ARV, or after repair value. You can learn more about how to calculate that here.

Many real estate investors won’t look into financing until after they have a deal in mind, which can cause them to miss great deals. When you are ready to start investing, make sure you reach out to lenders in your area, and learn more about their loans and rates and see what options work best for you, before you find the property—which, if it is a good deal, may go quickly. Knowing the industry terms and standards will ensure you get the best rates and the best opportunity for your property. Read reviews and see what customers have to say before you reach out, and make sure they are a reputable lender.

You will need these 6 things to qualify for a hard money loan:

  1. A Property Address;
  2. Estimated Purchase Amount for the Property;
  3. A Loan Amount, the covers property costs and repairs;
  4. Photos of the Property;
  5. Property Plans;
  6. A Budget for your Flip or Other Plans;

These six items will allow the lender to determine the following:

  1. The market and comparable properties in the area;
  2. How you plan to spend your loan and how much they can expect to see in return.
  3. After repair value, which simply means how much a property is valued after repairs and updates are made.