Applying for a hard money loan is much easier and straightforward of a process than traditional loans. They also provide a wider variety of property options you can receive a loan for with minimal documentation. As a result of these added benefits, hard money loan interest rates tend to be higher than those offered at banks. Generally speaking, you can expect to see interest rates between 9% and 12%.
What You Can Expect
The exact interest rate amount will vary depending on a few factors:
- Which property is being financed
- Your liquidity
- The location of the property
- Your credit history
- How much you are contributing as a down payment
The lower end of the interest rate range is reserved for borrowers with previous real estate experience, good credit, and strong liquidity. The higher end of the interest rate range usually applies to unique properties that are harder to value, properties in remote areas, or extremely rushed funding needs (such as within 1 to 3 days).
Interest Only Hard Money Loans
Hard money loans are almost always interest only, meaning you only pay the interest portion each month. This is different from a traditional mortgage loan from a bank, which amortizes monthly. In this scenario, the monthly payment consists of an interest and principal component until the very end of the loan when no more principal is due.
When you take out a hard money loan, the full principal amount of the loan is due at the end of the loan, but your monthly payments are much smaller. For example, assuming you take out a $100,000 loan at a 10% interest rate, each month you will pay $833.33 ($100,000 times 10% divided by 12). At the end of the loan period, you will pay back the borrowed $100,000.
Depending on the project, hard money lenders might require a minimum number of monthly payments to be made, such as 3 or 6 months. This is done to justify the underwriting work to approve the loan in the first place and is common practice within the industry.
West Forest Capital does not operate in a strict underwriting box where we charge the same standard rate to everyone. Instead, we understand that each situation is different and we tend to see the proposed value in properties and projects, which allows us to give the most competitive rates to our borrowers.
Qualifications for a Hard Money Loan
Hard money loans do not have any FICO score requirements or income requirements, making it easier for borrowers to obtain funding. The qualifications include:
Down Payment:
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.
Appraisal:
This is ordered by West Forest Capital.
Insurance Policy:
West Forest Capital should be the loss payee and additional insured.
Builder’s Risk Insurance:
For extensive rehab projects.
Lender Title Insurance:
West Forest Capital as the beneficiary.
Credit Score:
While a FICO credit score of 600+ is preferred, it’s still possible for projects to be funded with a score below this amount.
Get Your Hard Money Loan with West Forest Capital
There’s never been a better time to apply for a hard money loan. 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.
