Hard Money Lenders Cape May

Non-bank lenders known as hard money lenders offer asset-based loans, focusing primarily on the value of the property being financed rather than the borrower’s creditworthiness. Although both traditional banks and hard money lenders provide mortgage loans, the criteria and conditions set by hard money lenders usually differ significantly from those of banks. Hard money lenders give greater importance to the property’s underlying value and place less emphasis on the borrower’s financial background. The loan approval and underwriting process with hard money lenders is much faster and more straightforward, often resulting in funding within a week, whereas bank loans can take several months. This rapid funding makes hard money loans attractive to investors who buy foreclosed properties at auction and need to close quickly. Hard money lenders are also willing to finance properties that banks may decline, such as those without a Certificate of Occupancy. These loans are a good option for individuals with less-than-perfect credit since low credit scores are generally not a barrier. Additionally, hard money loans can be utilized to refinance existing mortgages or to access cash from investment properties. It is essential to remember that hard money lenders only finance investment properties, not primary homes, so these loans cannot be used for personal residential living.

Due to the fact that hard money loans are easier and faster to secure than traditional bank mortgages, interest rates are higher to compensate for this convenience. Rates generally range between 9 and 12 percent, and there are additional charges of 1 to 3 points at closing. The loan term usually spans one to two years. Hard money loans are commonly split into two parts: the first covers a portion of the purchase price, often between 70 and 85 percent, and the second covers rehab costs needed to bring the property up to standard. Many lenders will finance up to the entire rehab amount. If the property requires no rehab, that part is not included. Rehab funds are disbursed incrementally as work is completed, or in arrears. For example, if the rehab total is $50,000, the borrower may complete $15,000 of work and receive that amount in funding. This cycle continues until the rehab budget is fully funded. Usually, the total loan amount, combining purchase and rehab, does not exceed 65 percent of the property’s after-repair value, known as ARV.

Since hard money loans fall under the category of commercial loans, these lenders will not extend loans to individuals but only to LLCs. If you do not have an LLC, it is easy to form one and it can have only a single member, which can be you.

Hard money lenders carefully examine both the purchase price and after-repair value (ARV) to confirm the feasibility of repayment. Buying the property at or below market value is a key factor. When rehab financing is part of the loan, the lender requires that repairs are completed on schedule. Additionally, the property must have a clean title free of liens or judgments. Any encumbrances on the property or the LLC borrowing the loan must be resolved before disbursement.

It is important to hard money lenders that borrowers enter profitable investments. They want you to make money on your real estate project so they can recover their loan. To ensure this, lenders verify there is enough “spread,” meaning the ARV covers purchase price, rehab, loan interest, closing costs, and any other fees, with sufficient profit margin left over.

Hard money loans are primarily used in these real estate investing scenarios:

• Funding the purchase and repair of properties that traditional lenders will not finance, either due to the property’s poor condition or the borrower’s creditworthiness. After rehab, the property is sold in what is called a “fix and flip.”
• Buying rental properties that banks refuse to finance and renovating them. After rehab, these properties are “stabilized” and can be rented, qualifying for traditional refinancing at a lower interest rate.
• Meeting urgent purchase deadlines that traditional lenders cannot meet, such as at foreclosure auctions. Hard money lenders often close within a week, while banks take much longer.
• Pulling equity quickly from already owned properties using cash-out refinancing secured by the property.
• Refinancing existing mortgages promptly before maturity to avoid penalties or default.
• Purchasing real estate through an LLC. Since traditional lenders seldom lend to LLCs, hard money loans provide more ownership flexibility.

Hard money loans and flip loans are often mentioned together but are not exactly identical. Hard money loans, provided by private lenders such as West Forest Capital, support a variety of real estate investment goals by focusing on the asset’s value instead of borrower credit. Flip loans fall within the category of hard money loans but are tailored specifically for investors who purchase, rehab, and then quickly sell properties to gain a profit. While every flip loan is a type of hard money loan, not all hard money loans are used exclusively for flipping real estate—they can also finance other investment strategies.