Did you just see a real estate opportunity that you don’t want to pass? Hard money loans are excellent for such situations when you want to get your hands on some cash. By borrowing from a hard-money lender, you have excellent opportunities like investing in fixing and flipping properties. Moreover, your hard-money lender is less likely to care about your credit score, given that you improve your situation financially. You can consult a professional to understand the hard money lender process.
Do you know there are different types of hard money loans? We’ll mention the types to help you comprehend what they offer. Keep reading to get familiar with the hard money loan types.
What are the Types of Hard Money Loans?
You can get a better understanding of hard money loans by learning the types it is available. These types include the following:
1. Transactional Hard Money Loans
You can get transactional hard money loans if you’re looking to finance the purchase of a property. These are typically short-term loans that are excellent for buying, fixing, and selling a property. Furthermore, it depends on the after-repair value of the property. The best part? They’re the easiest to acquire since the borrower won’t need to have a high credit score or a lot of equity in the property.
The benefits of transactional money loans include these:
- You can get fast approvals, as little as 24 hours
- It’s easy to qualify for
- Lower interest rates compared to other types of loans
2. Bridge Hard Money Loans
Another alternative for fast access to cash is bridge hard money loans. This loan is pretty popular since it allows the borrower to go through with the sale and purchase process. Thus, the lender might not wait for your existing home to sell. Bridge hard money loans rely on the property’s value, which means there’s a lower risk than a transactional loan.
Here are some benefits of bridge hard money loans:
- It allows more flexibility
- You can get fast approval
- The loan might close in a short amount of time, as little as two weeks
3. Rental Hard Money Loan
For people who have recently ventured as a developer, it can be challenging to estimate the cost of renovating a building. Therefore, rental hard money loans save the day when you want quick access and flexibility. This can be especially helpful if you require emergency funds or another resource when investing in a project. Renovating an old building can be more costly than you would expect. However, you can get a rental hard money loan to spend wisely.
The advantages of rental hard money loan include the following:
- There’s an interest-only option, meaning you’ll only have a set period to pay off the interest
- You can get a rental loan as quickly as five days
- You’re less likely to have a payment penalty
4. Commercial Hard Money Loans
You can take a commercial hard money loan if you require finances for purchasing or renovating a commercial property. The benefits of a commercial hard money loan include the following:
High loan amounts, give you the opportunity to finance a larger project
It is versatile; you can use the loan for renovating different properties
There’s a better Loan to Value or LTV
What Should I Do?
You can choose which hard money loan to opt for after getting familiar with the types: transactional, bridge, rental, and commercial. Red Door Funding can help finance your fix and flip projects and more. Talk to us at (832) 539-1099. Or, better yet, visit our office at 110 Avenue B #100, Stafford, TX 77477, United States.
FAQs
What Is a Hard Money Loan? A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of "last resort" or short-term bridge loans. These loans are primarily used in real estate transactions, with the lenders generally being individuals or companies and not banks.
What is an example of a hard loan? ›
An example of a hard loan would be a loan agreement between a Brazilian company and an Argentinean bank in which the debt is to be paid in U.S. dollars is a type of hard loan because U.S. dollars are considered to be hard currency and more stable than either the Brazilian real (BRL) or the Argentine peso (ARP).
What are the terms of hard money? ›
Hard money loans typically offer repayment terms of 12 – 24 months and loan amounts ranging between 70% and 80% of the appraised value of a property. If the loan is used for renovations, borrowers can get up to 100% of their costs covered.
Why would someone use a hard money loan? ›
Hard money loans, also called bridge loans, are short-term loans commonly used by investors, such as house flippers or developers who renovate properties to sell. They might also be a solution if you are facing foreclosure.
What happens if you default on a hard money loan? ›
In short, defaulting on a hard money loan will inevitably lead to the foreclosure process that ends with either the bank taking possession of the property or putting it up for sale at auction.
What is the average interest rate on a hard money loan? ›
Rates for hard money loans can vary, but the average interest rate is generally between 10% and 18%, which is significantly higher than a conventional loan. On top of that, other costs are often associated with these types of loans, including points and origination fees ranging from 2% to 6%.
What is an example of a hard money lender? ›
Here's how a typical hard money loan works: The borrower wants to purchase a fixer-upper for $100,000. The estimate for renovation costs is $30,000, and it's projected the rehabbed property can be sold for $180,000. In this example, the hard money lender will lend 70% of the home's projected value after repairs.
What is the longest term for a hard money loan? ›
Hard money loans for rental properties range from short-term bridge loans up to five or even 15-year loans. Ideally, we want borrowers to use hard money on rentals for 6-24 months, but some situations call for longer periods, including: Vacant property. Cannabis tenants.
Why is it called hard money lending? ›
So, why the term "Hard Money"? It's not because these loans are difficult to obtain or repay, but rather because they involve cold, hard cash transactions.
What credit score is needed for a hard money loan? ›
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.
Easy Steps to Complete a Hard Money Loan Application
- Step 1: Find a reliable hard lender. ...
- Step 2: Present the value of the property you want to purchase. ...
- Step 3: Show your financial plan. ...
- Step 4: Provide the lender with additional documentation. ...
- Step 5: Review the paperwork.
To calculate the total payment for a hard money loan, you will need to include the interest rate, loan amount, and loan term. For example, if you take out a $100,000 loan with a 12% interest rate and a 12-month term, your monthly payment would be approximately $9,333.
Is it difficult to get a hard money loan? ›
Securing a hard money loan for your next fix-and-flip or construction project is much different than applying for a traditional mortgage, but it's not difficult.
Do hard money loans hurt your credit? ›
However, this doesn't mean these loans are invisible to credit bureaus. While not all hard money loans are reported, those that are can either positively or negatively affect your credit score, depending on your payment history.
How do payments on hard money loans work? ›
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.
What is the difference between a hard money loan and a conventional loan? ›
Hard money loans or private loans are short-term loans issued by private lenders. The loan term is generally short ranging from 6 months and can go up to 5 years, unlike the conventional mortgages which can extend up to 30 years.
Do hard money loans show up on credit? ›
While a hard money loan will not appear on your credit report, and your credit score is typically of little concern, the lender will perform a background check to ascertain whether you are at risk for defaulting on the loan.
What is the opposite of a hard money loan? ›
A soft money loan requires more underwriting than a hard money loan, allowing it to have lower rates and greater security.
