Hard Money Lenders Princeton

Hard money lenders are private lenders who provide asset-backed loans, focusing on the value of the property rather than the borrower’s credit or income qualifications. Both banks and hard money lenders offer mortgage loans, but hard money lenders use different underwriting criteria that emphasize the property as collateral more heavily. Their loan approval and funding process is much quicker, often occurring within a week, compared to the much longer timelines associated with bank loans. This quick turnaround makes hard money lending attractive to real estate investors who need to close purchases of foreclosed properties bought at auction quickly. Hard money lenders also lend on properties that banks will not finance, such as those lacking a Certificate of Occupancy. Borrowers with poor credit or those rebuilding credit can still qualify because credit scores are not the primary consideration. These loans may also be used for refinancing or cashing out on investment properties. It is essential to know that hard money loans are designed exclusively for investment properties and cannot be used for owner-occupied residences.

Since securing a hard money loan is a much quicker and less complicated process compared to a conventional bank mortgage, the associated interest rates are typically higher. Expect interest rates to be in the 9 to 12 percent range, with closing fees that may include 1 to 3 points. Loan durations are generally one to two years in length. Hard money loans are commonly split into two segments: the first covers a percentage of the property purchase price, usually ranging from 70 to 85 percent, while the second covers any necessary renovations. Lenders often finance up to the full cost of the rehab project. If a property doesn’t need any repairs, no rehab funds are included. Rehab funding is released incrementally after work is completed, or in arrears. For example, if a borrower needs $50,000 for rehab, they might finish $15,000 of work, then receive the corresponding payment from the lender. This continues until the rehab budget is fully funded. The total loan amount, purchase price plus rehab funds, is typically capped at 65 percent of the after-repair value (ARV) of the property.

Because hard money loans are considered commercial financing, the lender will only extend credit to LLC entities, not individual borrowers. If you have not yet formed an LLC, this is typically a simple process and you can establish one with yourself as the sole member.

When considering a loan application, hard money lenders analyze the purchase price of the property along with its after-repair value (ARV) to ensure loan repayment feasibility. Acquiring a property at or below market price is an essential part of loan approval. If the loan includes rehab funding, lenders expect that repairs will be conducted on schedule. Additionally, having a clean title on the property and the LLC borrowing the money is required; any existing liens or judgments must be cleared before funds are released.

Lenders want to make sure their borrowers enter deals that have a profitable outcome. The goal of the hard money lender is to see you make money on your real estate investment, which in turn allows them to recoup their loan. This means confirming there is enough financial “spread” where the ARV exceeds the combined costs of purchase, rehab, interest, closing, and fees, leaving an adequate profit margin for you.

Hard money loans are most frequently utilized in the following real estate investment cases:

• Funding both the acquisition and renovation costs for properties that traditional lenders refuse due to poor property conditions or less-than-ideal borrower credit. After repairs, these properties are commonly sold to retail buyers in what is called a “fix and flip.”
• Buying and improving rental properties where banks are unwilling to provide financing. Once rehab is complete, the property is considered “stabilized” and can be rented, qualifying it for a traditional refinancing loan with lower rates.
• Closing purchases on tight schedules that conventional lenders cannot accommodate, such as at foreclosure auctions. Hard money lenders can often finalize deals within a week, while banks typically require months.
• Drawing quick equity from properties already owned by leveraging them as collateral in a cash-out refinance.
  Refinancing an upcoming mortgage quickly to avoid default or costly penalties.
• Acquiring property under an LLC’s name. Since conventional lenders rarely finance LLCs, hard money loans are a more adaptable choice for structuring ownership beyond individual names.

Although hard money loans and flip loans are closely related, they are not identical. Hard money loans come from private lenders like West Forest Capital and cater to various real estate investment goals, emphasizing the property’s value instead of the borrower’s creditworthiness. Flip loans, however, are a particular form of hard money loan aimed at investors who buy, renovate, and then sell properties quickly for a profit. All flip loans are a type of hard money loan, but hard money loans can also be used for other real estate investment purposes beyond flipping.