Hard Money Lenders Montclair

Hard money lending refers to loans provided by non-bank lenders who primarily evaluate the value of the property securing the loan rather than relying heavily on the borrower’s credit or financial background. Both traditional banks and hard money lenders make mortgage loans, but the lending qualifications differ greatly. Hard money lenders place much greater emphasis on the underlying asset and less on the borrower’s personal financial situation. The underwriting process is much quicker and less complex, with loans often funded in under a week, whereas bank loans typically take several months to finalize. This expedited funding is a major advantage for investors purchasing foreclosure properties at auction, where quick closings are essential. Hard money lenders also accept properties that banks won’t finance, such as those without Certificates of Occupancy. They provide options for borrowers with poor credit and those working to rebuild credit scores. Furthermore, hard money loans can be used to refinance or cash out on investment properties but are never intended for owner-occupied homes.

Since hard money loans can be secured much faster and with less complexity than conventional bank mortgages, the interest rates are understandably higher. You can expect to pay interest rates between 9 and 12 percent, plus closing costs that include 1 to 3 points. The loan duration is most often set at one or two years. These loans usually consist of two parts: the first part covers the purchase price, which typically ranges from 70 to 85 percent of the property cost, and the second part finances any needed rehabilitation. Hard money lenders commonly finance up to the full rehab amount. If no renovations are necessary, this portion of the loan will not be included. When rehab is required, lenders disburse funds in arrears after a portion of the work is completed. For example, with a rehab budget of $50,000, the borrower may finish $15,000 worth of work and then request that same amount from the lender. This process repeats until all rehab funds are distributed. Generally, the total loan amount, combining purchase and rehab funds, does not exceed 65 percent of the property’s after-repair value or ARV.

Hard money loans are treated as commercial loans, which means lenders will only provide financing to LLCs, not to individual persons. If you do not have an LLC yet, this should not cause concern because creating one is generally straightforward and it may have a single member, which can be you.

Lenders in the hard money market assess both the purchase price and the after-repair value (ARV) of the property to guarantee they can recover the loan amount. It is important to acquire the property at or below market value to be eligible. If the loan includes funds for rehab work, the lender expects the repairs to be done according to the established schedule. Also, having a clear title free of liens or judgments on both the property and the borrowing LLC is mandatory before loan funds can be disbursed.

A hard money lender cares deeply about the profitability of the transaction for their borrower. They want to see you earn a return on your investment so that the loan is repaid in full. To ensure this, lenders confirm that there is an adequate “spread” in the deal. This means the ARV must cover the purchase price, rehab expenses, interest on the loan, closing costs, and any additional fees with enough profit margin remaining to make the investment financially viable for you.

Hard money loans are most commonly used in these real estate investment circumstances:

• To finance the purchase and rehabilitation costs of properties that a bank will not fund, often due to the borrower’s credit or the condition of the property. Once renovated, these homes are sold to retail buyers in what’s called a “fix and flip.”
• Purchasing and refurbishing rental properties that banks refuse to finance. After renovations, the property becomes “stabilized” and eligible for rental income, allowing for a traditional refinance at a lower interest rate.
• Meeting urgent purchase deadlines that traditional lenders cannot meet, including purchases at foreclosure auctions. Hard money lenders can close within a week, while banks may take months to process.
• To quickly leverage equity from an owned property through a cash-out refinance.
• To refinance an existing loan swiftly before maturity to avoid default or penalties.
  Purchasing property in an LLC’s name, which is difficult with traditional lenders, but hard money lenders offer more flexible ownership structures.

The terms hard money loans and flip loans are often used together but they are not exactly the same thing. Hard money loans come from private lenders like West Forest Capital and are used for diverse real estate investment purposes, prioritizing the property’s value over borrower credit. Flip loans are a specialized type of hard money loan created specifically for investors who purchase, renovate, and then quickly sell properties for profit. While all flip loans are a subset of hard money loans, not all hard money loans are intended for flipping, as they also fund other real estate ventures.