Hard Money Lenders Long Branch

Hard money lenders operate outside of traditional banks, offering loans primarily based on the value of the property rather than the borrower’s financial history. While both banks and hard money lenders provide mortgage loans, the qualifications and requirements from hard money lenders differ greatly compared to traditional banks. The focus of hard money lenders is much more on the collateral itself, with less weight placed on the borrower’s credit or income. The underwriting process is streamlined and faster, often allowing loans to be approved and funded in as little as a week, unlike the months it can take with conventional banks. This fast turnaround makes hard money loans especially popular with real estate investors who purchase properties at foreclosure auctions where closing deadlines are tight. Additionally, hard money lenders will often finance properties that banks refuse to, such as those lacking a Certificate of Occupancy. Hard money loans are particularly beneficial for borrowers with poor or rebuilding credit, as a low credit score generally does not disqualify applicants. These loans can also be used for refinancing or to extract equity from investment properties. However, it’s critical to understand that hard money lenders only offer loans for investment properties and do not provide mortgages for primary residences; living in a property financed by a hard money loan is not permitted.

Because hard money loans are faster and simpler to obtain compared to traditional bank mortgages, the interest rates tend to be higher. These rates generally fall between 9 and 12 percent, with closing fees of 1 to 3 points. The loan terms are typically one or two years. The loans are generally structured in two parts: one to cover the purchase price, usually between 70 and 85 percent of the cost, and another to cover any rehab work necessary to update the property. Hard money lenders often provide funding for up to 100 percent of the rehab budget. If no rehab is needed, this part is excluded from the loan. Rehab funds are released incrementally after portions of the work are completed, in arrears. For instance, with a rehab cost of $50,000, the borrower might complete $15,000 of the work, then receive that amount from the lender. This continues until the entire rehab budget is funded. Typically, the total loan amount will not exceed 65 percent of the property’s after-repair value (ARV).

Because a hard money loan is treated as a commercial loan, lenders only provide financing to LLCs and not to individuals. If you do not have an LLC, it is easy to set one up and it can have just one member – you.

Hard money lenders evaluate both the purchase price and the after-repair value (ARV) of a property to make sure loans will be repaid. Buying at or below market price is important to qualify. If rehab funds are included, the lender requires that repairs be completed on schedule. Having a clear title is essential; any liens or judgments on the property or borrowing LLC must be cleared before loan funds are released.

Hard money lenders want their borrowers to enter investments that are profitable. They want you to succeed in your real estate venture so they can get repaid. They check that there is adequate “spread” in the deal. This means the ARV will cover purchase price, rehab costs, loan interest, closing costs, and other fees, with enough left to make the deal financially viable.

A hard money loan is most frequently used in the following real estate investment cases:

• To finance the purchase and renovation costs of properties that banks will not support, often because of the borrower’s credit or the property’s condition. Once fixed up, these properties are sold to retail buyers in a process known as a “fix and flip.”
• To buy and renovate rental properties that banks will not fund. After the rehab is complete, the property is “stabilized” and can be rented, making it eligible for refinancing at lower interest rates.
• To close purchases on tight timelines that traditional lenders cannot accommodate, including foreclosure auctions. Hard money lenders can often close in under a week, while banks may take months.
• To quickly access equity from owned properties using cash-out refinancing with the property as collateral.
• To refinance loans quickly before maturity to avoid penalties or default.
• To purchase property under an LLC name. Since traditional lenders typically avoid lending to LLCs, hard money lenders offer a flexible alternative.

Though closely related, hard money loans and flip loans are not the same. Hard money loans are private money loans offered by lenders like West Forest Capital and are used for many types of real estate investments, emphasizing the property’s worth over the borrower’s credit history. Flip loans represent a specialized class of hard money loans designed for investors looking to purchase, renovate, and quickly sell properties for a profit. All flip loans qualify as hard money loans, but not all hard money loans are intended for flipping; many are used to fund other real estate investment ventures.