When it comes to hard money lending, the time frame needed to close the loan request and approve it revolves anywhere between 3 days to 2 weeks. On the other hand, conventional mortgages take a much longer time with an approximate period of 4 weeks to even a few months to just process your loan application.
Hard money will absolutely want to pull credit before you are pre-qualified, but the initial conversations should be fine without giving up the SSN. Almost all lenders will want to see some money down and some reserves, 10% down is the norm for hard money.
Credit Criteria
Usually, a minimum credit score of 550 or higher is required to qualify for a hard money loan. However, some lenders may be more lenient and even provide financing to borrowers with a score as low as 500.
Your lender may ask you to provide a down payment of 10% to 30% (or more) on your hard money loan. Generally, the stronger your credit and financial qualifications, the less of a down payment you'll need to provide. However, a larger down payment may help you access better rates and terms.
Unlike a traditional home mortgage, hard money lenders typically only charge interest on a monthly basis, which means you don't actually pay any money toward the principal loan amount at each monthly payment cycle. However, you will have to pay back the full principal amount at the end of the loan's life cycle.
In order to accomplish those goals, hard money loans are structured differently than traditional mortgages. Current hard money loan rates, as of 2021, vary between about 7.5% and 15%. Every hard money lender, however, offers slightly different rates and fees.
This type of funding is considered more flexible than what banks or other traditional lenders offer. Because hard money loans require borrowers to use their assets as collateral, private lenders are often more willing to work with borrowers with bad credit or more modest cash reserves.
This means that the investor must already have a property in mind if they want to be “preapproved” for funding. Once a hard money lender analyzes and approves the property deal, they will provide a Proof of Funds letter which will allow the investor to purchase the property with financial backing by the lender.
If a lender quotes you three points, it means 3% of your loan amount. So, if your loan is $100,000 with three points, that means it's a $3,000 fee.
Finally, hard money lenders do not make consumer loans, so to make sure the lender knows the loan is a business investment, you should set up the real estate under an LLC.
Traditional lenders don't issue hard money loans. You get them from individual investors or private companies. Borrowers may turn to hard money loans after a loan or mortgage application is denied or to avoid the lengthy process of getting approved for a loan through traditional methods.
A hard money loan can provide you with cold, hard cash quickly — typically in just a few days. These loans are secured by a physical asset (like real estate) that the lender can repossess if you default on your payments.
Flexible loan terms: Hard money lenders tend to be flexible when it comes to negotiating loan terms.
Getting approved for a hard money loan requires much less paperwork than is necessary for securing a traditional loan, because the loan is not secured by your personal assets or credit. One of the few pieces of required paperwork, however, will be proof of income.
Here are the common types of prepayment penalties you might encounter: Fixed Penalty: This is a flat fee or percentage applied if you repay your loan early, as is the case with Yieldi's 3% penalty if paid before 6 months. The penalty amount remains the same regardless of when within that period the loan is paid off.
Documentation that should be included is as follows: a copy of the purchase contract (if you're buying a new property) or Broker's Price Opinion or other market analysis (if you're refinancing), an appraisal, the Commitment for Title, a copy of the survey, inspection reports, and contractor repair estimates (if any ...
How much do you have to put down on a hard money loan? In most cases, the house flipper is required to put down between 10% and 20% of the project cost. For example, if the hard money lender covers 85% of the project cost, the investor would need to cover the shortfall of 15%.
How long does a hard money loan take to close in California? Typically, loans close within seven business days from when the real estate investment purchase contract and rehab budget is received.
Hard money loans may be used in turnaround situations, short-term financing, and by borrowers with poor credit but substantial equity in their property.
These types of loans are commonly known for their short duration, usually between six and eighteen months, although they can be as long as three to five years. The most common use of hard money loans today involves real estate investments such as residential fix and flip projects.
As of 2024, hard money interest rates have spiked up to 9.5 – 12% for first-position loans and 12 – 14% for second-position ones.