Hard Money Lenders Atlantic City

Hard money lenders are private, non-bank lenders who offer asset-based loans, placing more importance on the property’s value than on the borrower’s credit score or financial history. Although banks and hard money lenders both issue mortgage loans, the standards and lending criteria vary substantially. The underwriting process with hard money lenders is significantly shorter and more efficient, frequently enabling loan funding in as little as a week compared to the months-long process common with traditional banks. This quick approval and funding process makes hard money loans a preferred choice for investors purchasing auctioned foreclosure properties that require rapid closings. Hard money lenders are also willing to finance properties that banks typically will not, including those without Certificates of Occupancy. These loans are suitable for people with poor credit or those working to rebuild their credit since FICO scores are less critical to approval. Furthermore, hard money lenders can provide refinancing options or cash-out loans on existing investment properties. It’s crucial to understand that hard money loans are strictly for investment properties and cannot be used for owner-occupied residential homes.

Because hard money loans are quicker and simpler to obtain than traditional bank mortgages, their interest rates tend to be higher. Interest typically falls between 9 and 12 percent, with closing costs including 1 to 3 points. The loan term is generally one or two years. These loans are structured in two main parts: the first covers the purchase price, often between 70 and 85 percent of that amount, while the second part covers any necessary rehab to bring the property up to modern standards. Hard money lenders commonly finance up to 100 percent of rehab costs. When no rehab is needed, that part is omitted. Rehab funds are released incrementally after work is completed. For example, if $50,000 is allocated for rehab, the borrower might finish the first $15,000 of work and then receive that sum from the lender. This process continues until the entire rehab amount has been funded. Usually, the total loan amount combining purchase and rehab funds does not exceed 65 percent of the property’s after-repair value or ARV.

Because a hard money loan is categorized as a commercial loan, lenders only provide financing to LLC entities, not individual borrowers. If you do not have an LLC, there is no problem forming one, which can be done easily and may have only one member – you.

Hard money lenders evaluate both the purchase price and the after-repair value (ARV) of a property to confirm that their loans will be repaid. Purchasing below or at market value is a key factor in loan approval. When a loan includes rehab funds, the lender monitors to ensure repairs are completed on time according to the agreed schedule. A clear title is also necessary; any liens or judgments on the property or borrowing LLC must be resolved prior to loan funding.

Hard money lenders want borrowers to enter profitable transactions. In other words, they want you to make a profit on your real estate investment so they can be repaid. They verify that the deal has sufficient “spread,” meaning the ARV covers the purchase price, rehab expenses, loan interest, closing costs, and additional fees, with enough margin to ensure a profitable investment.

Hard money loans are often applied in the following real estate investment contexts:

• Covering purchase and renovation costs on properties that banks will not fund, often due to the borrower’s credit or the state of the property. Once rehab is complete, these properties are sold in a process called “fix and flip.”
• Buying and improving rental properties that banks decline to finance. After rehabilitation, the property is considered “stabilized” and eligible for traditional refinancing at reduced interest rates.
• Handling purchases with very tight deadlines that banks cannot satisfy, including foreclosure auction purchases. Hard money lenders can often close deals in under a week, whereas banks take months.
• Accessing equity quickly from an owned property by using it as collateral in a cash-out refinance.
• Refinancing existing mortgages quickly before they mature to avoid default or penalties.
• Buying property through an LLC. Since conventional lenders rarely lend to LLCs, hard money loans provide greater ownership flexibility.

Hard money loans and flip loans, though similar, are not exactly the same. Hard money loans are private money loans provided by lenders such as West Forest Capital and cater to a variety of real estate investment purposes by focusing primarily on the property’s value instead of the borrower’s credit rating. Flip loans are a specific subset of hard money loans designed for investors who buy, rehab, and then quickly resell properties to make a profit. While all flip loans qualify as hard money loans, hard money loans themselves are not exclusively used for flipping properties but can finance other real estate investments as well.