Real estate investors may encounter hard money loans during their search for reliable fix and flip financing. However, they may not necessarily understand what exactly a hard money loan is and how it works. Here are the basics of what investors should know when dealing with hard money lenders.
What is a Hard Money Loan?
A hard money loan is a type of loan that is issued to investors based on the “hard asset” or the property itself. While hard money lenders do take into consideration additional factors like the individual borrower’s credit, experience, and income, these are not as high a priority when determining the borrower’s eligibility and loan amount. Hard money loans typically come with much higher interest rates, sometimes anywhere between 8% and 14% and have shorter terms of around 12 months. This is a much quicker form of funding, with loans capable of being issued within days to weeks instead of months.
Who Provides Hard Money Loans?
Hard money loans are funded through private investors, smaller companies and businesses. Traditional lenders such as banks will not issue hard money loans.
Who Wants a Hard Money Loan?
Real estate investors who focus on rental properties and fix and flip projects will turn to hard money loans as a means of financing when they find that conventional lenders like banks have failed them. For investors who do not meet the standards that banks set, such as high credit scores and income, they will find hard money loans a good alternative form of funding.
What Properties Do Hard Money Lenders Loan On?
Hard money lenders will mainly focus on non-owner occupied investment properties including single-family, multi-family, condos, townhomes, and even commercial unit.
How Are Hard Money Lenders Different Than A Direct Private Lender?
When we know the exact answer, we will let you know. There is a fine line between the various terms, and they are used interchangeably by different people.
We tend to think of it this way: a private lender provides money for real estate investors that most likely can obtain loans from a bank, but want more flexibility and speed than a bank can offer. (Please email me if you find a bank that actually closes in less than 14 days.) To learn more about the difference between a hard money lender and direct private lender, click here.
List of Hard Money Lenders by State
For investors looking for real estate financing for their investment deals, finding the right hard money lender or private money lender is essential. Locating a hard money lender in your state who understands that local market for fix and flip or rental deals will make it even easier. Be sure to check out our list of hard money lenders by state and learn more about the financing available and the featured markets across the country for real estate investing.