Hard Money Lenders Westfield

Hard money lenders differ from banks as they are non-traditional lenders who focus on the value of the property used as collateral rather than the borrower’s financial qualifications. Although mortgage loans are provided by both types of lenders, the standards and requirements of hard money lenders often vary significantly from traditional banks. The underwriting and approval process with hard money lenders is much faster, often completing in under a week compared to the extended timeline of 2-3 months or more with banks. This speed is particularly useful for real estate investors who purchase auctioned foreclosed properties and require rapid financing. Additionally, hard money lenders frequently fund loans on properties that banks will not touch, including those without Certificates of Occupancy. Hard money loans are also available to borrowers with poor credit or those rebuilding their credit, since credit scores play a lesser role. These lenders can provide financing for refinancing or cash-out loans on investment properties, but importantly, their loans are strictly for investment purposes and cannot be used to purchase or finance primary residences.

Because hard money loans can be obtained far more quickly and easily than a traditional mortgage from a bank, their interest rates are generally higher. Borrowers can expect rates ranging from 9 to 12 percent, with closing fees between 1 and 3 points. The typical loan term lasts either one or two years. The loan is usually divided into two components: the first is the purchase funding, usually covering between 70 and 85 percent of the property price, and the second covers any necessary rehabilitation work. Hard money lenders often finance the full cost of rehab, up to 100 percent. If no rehab work is needed, that portion will not be included. Rehab funds are paid out incrementally after work has been completed. For instance, if the rehab cost totals $50,000, the borrower might complete $15,000 of the work and receive that amount from the lender. This continues until the full rehab amount is disbursed. The overall loan amount, including purchase and rehab, usually does not go beyond 65 percent of the after-repair value, also called ARV.

Because hard money loans fall under the category of commercial loans, lenders in this field only offer loans to LLCs rather than individual borrowers. If you do not yet own an LLC, this is not a barrier as setting one up is relatively simple and it can consist of just one member, such as yourself.

Hard money lenders focus on both the property’s purchase price and its after-repair value to ensure loan repayment is feasible. Purchasing at or below market price is a significant consideration for loan approval. When a rehab loan is involved, the lender requires repairs to be completed according to the planned schedule. It is also critical that the property’s title is free from liens or judgments, and any encumbrances on the LLC or property must be resolved before funds are released.

It is crucial for a hard money lender that the borrower enters into a real estate deal that is financially sound. The lender’s interest lies in your profitability, as their repayment depends on your success. They check that the deal has enough “spread,” meaning the ARV can cover the combined costs of purchase, rehab, loan interest, closing fees, and other expenses, while leaving sufficient room for a profitable return.

Investors typically use hard money loans in the following real estate situations:

• Covering both the acquisition and renovation of properties that banks will not finance, usually because of the property’s poor condition or the borrower’s credit situation. Once the rehab is finished, these properties are sold to retail buyers in a “fix and flip” strategy.
• Buying and renovating rental properties that conventional banks refuse to lend on. After rehabilitation, the property is deemed “stabilized,” allowing for rental and eligibility for lower-cost traditional refinancing.
• Funding purchases with urgent timelines that banks cannot accommodate, such as foreclosed property auctions. Hard money lenders can close within days, whereas banks may take several weeks or months.
• Extracting equity quickly from existing properties through cash-out refinancing using the property as collateral.
• Refinancing existing loans rapidly before they mature to avoid default or penalties.
• Buying real estate in an LLC’s name, a process that is often more flexible with hard money lenders since traditional banks rarely lend to LLCs.

Hard money loans and flip loans are closely linked but serve different functions. Hard money loans are provided by private lenders such as West Forest Capital and are generally used for various real estate investments, focusing more on the property value than the borrower’s credit. Flip loans represent a specific category of hard money loans aimed at investors planning to buy, rehab, and quickly flip properties to make a profit. Although every flip loan is a hard money loan, not all hard money loans are dedicated to flipping; they can support a variety of real estate investment activities.