Are you interested in purchasing or rehabbing real estate property? If you need a loan quickly, a hard money loan is a great option and helps you to avoid going through a traditional mortgage lender. This article will tell you everything you need to know about hard money loans.
Hard Money Loan Definition
The definition of a hard money loan is a short-term loan that is used to acquire investment properties to rehab and then flip for resale or rent. This specific type of asset-based loan financing is used by real estate investors and others who are looking to finance non-owner occupied real estate.
You might be wondering, “What is a hard money loan for real estate?” The real estate involved with hard money loans can include apartments, single-family homes, multi-family homes, commercial buildings, industrial buildings, and land.
Because hard money loans are short-term, they typically last one to three years. However, we do provide extensions up to 6 months and longer on a case-by-case basis.
Hard Money Loan Example
An example of a hard money loan would be a real estate investor who wants to fix-and-flip an apartment building that is non-owner occupied. The investor could apply for a hard money loan in order to pay for the rehab costs and/or purchase costs of the building.
How Does a Hard Money Loan Work?
The way a hard money loan works is very different from a traditional lender.
Traditional mortgage lenders require some type of proof that you can repay the loan over time, and that proof is in the form of a credit score and your income. For borrowers who have a good credit score and income, and a history of paying back loans, most borrowers will get approved if they meet these conditions. But working through a traditional lender can take time, and not all borrowers have weeks or months to wait for the approval. Not to mention, borrowers might go through the tedious process of trying to get approval for securing their loan, only to find out that their application was denied.
Hard money loans lend on the asset, which is the property or land. If for some reason a borrower cannot repay the loan, the real estate property (asset) can be taken back and sold. Because of this, hard money loans do not have requirements for a high credit score or income. While it might be preferred that fund borrowers have a 600+ FICO score, projects can still be funded if a score is below that range.
Hard Money Loan Interest Rates
The interest rates for a hard money loan will vary depending on the lender. At West Forest Capital, our interest rates are anywhere from 9.5% to 11%.
What is Needed for Hard Money Loans?
Since a high credit score is not required for a hard money loan, one of the main factors in obtaining the loan is meeting the down payment requirement. The down payment serves as collateral for your loan and can range from 10% to 40% depending on the specific type of property. These down payments are calculated based on the Loan-To-Value (LTV) ratio of the property.
For example, let’s say you want to purchase a residential property for $100K. If the LTV ratio offered is 90%, then you would be responsible for the $10K down payment. Hard money loans also typically require the following:
- Appraisal (to be ordered by West Forest Capital)
- Lender title insurance
- Insurance policy (West Forest Capital should be loss payee and additional insured)
- Builder’s risk insurance on extensive rehab projects
Benefits of Hard Money Loans
The benefits of hard money loans include:
Transaction Speed
At West Forest Capital, we prioritize transaction speed. The application process for a hard money loan does not take nearly as much time as with a traditional lender and in most cases, we can fund a loan within five days.
Flexibility
As a private lender, we are able to address each loan application on a case-by-case basis, something traditional lenders cannot do. Whether you are looking for the best rate, the fewest points, or the lowest out-of-pocket requirements, we will work with your needs. Our deep knowledge of the local market also allows for creative solutions. And because we know the ins and outs of the local counties and towns, we will help you to achieve success with your investment.
Approval
Even if you have a low credit score or a foreclosure in your history, we might still be able to work with you on securing your hard money loan.
Transparency
Our funding process is clear and simple. We never charge hidden costs or fees.
Communication
Our team at West Forest Capital is diligent, quick to respond, and available any day of the week to assist.
Who Should Get a Hard Money Loan?
Hard money loans are ideal for real estate investors looking to rehab and flip residential or commercial buildings or land. Real estate investors who are looking to only hold onto a property for a limited period of time or refinance with a traditional bank, are the ideal candidates since hard money loans are intended for the short-term.
Hard Money Loans with West Forest Capital
West Forest Capital provides funds to real estate investors and others looking to finance non-owner occupied real estate. We fund property types which include:
- Apartments
- Single-family
- Multi-family
- Commercial
- Industrial Land
We provide rehab funds, or full construction costs, as needed. We also provide fast closings, almost always less than 10 days, and often as quick as 3 to 5 days. We’ve even previously closed a brand new loan in one day! We lend in New Jersey, New York, Connecticut, Massachusetts, Pennsylvania, and Florida.
