Best Hard Money Lenders

Hard money loans are an excellent way to borrow without going through a traditional mortgage lender. In most cases, loans are extended from investors or lenders who allow you to borrow money based on the value of the property you’re using as collateral. But when you need to borrow money quickly, or you can’t get anyone to approve a loan for you, then hard money might be the only way to go.

Hard money lenders are good for approving short-term loans that help you purchase or renovate residential and commercial properties quickly. Because there are more than 600 hard money loan lenders in the United States, it can be hard to know which ones are best for your needs. Here are the best hard money lenders you should consider the next time you need to borrow money.

What Are Hard Money Lenders?

Hard money lenders are funded by a fund of investors or private investors as opposed to banks or credit unions, which are considered traditional lenders. They extend short-term loans based on real estate property. Loan terms are approximately 12 months but can be extended to up to five years. Hard money lenders usually require you to pay monthly payments of interest only. In some cases, they need interest and some principal with a lump sum at the end of the term.

The amount of money that you are allowed to borrow from a hard money lender depends on the value of the subject’s property. You can use property that you already own and want to use as collateral or property that you are in the process of buying. Hard money lenders are focused on the property’s value and not necessarily the borrower’s credit. However, your credit score may still be relevant to a hard money lender. If a borrower cannot get approved for traditional financing due to a recent short sale or foreclosure, then they can still get a hard money loan if they have equity in the property that they wish to use as collateral. In other words, hard money lenders will say yes when banks say no.

Property Types Accepted For Hard Money Loans

You can use just about any type of property to obtain a hard money loan. This includes a single-family home, a multi-family house, land, and commercial or industrial properties. Some hard lenders may have special requirements. For example, a lender that specializes in residential units may not be able to do loans for land because they do not have experience in this field. Many hard lenders are comfortable dealing with one specific property type, so you will want to ask them upfront what kinds of property they will use as collateral. Due to rules and regulations, most lenders will not lend to owner-occupied residential homes. However, some lenders are willing to do this. All lenders do loans in the first position while only a handful will do the second position.

Who Should Use A Hard Money Lender?

Hard money loans are not for everyone. For example, if you were able to purchase a home with a good income history and credit, and there were no issues such as a foreclosure or short sale, then you might want to consider traditional financing through a credit union or bank. Banks tend to have a lengthy process, so you will want to make sure you have time to go through the paperwork needed. You should only use hard money as your primary source of financing when banks are not an option or when you need cash in a short amount of time.

Ideal situations for hard money loans include:

  • Land loans
  • Flips
  • Houses that need fixing up
  • Borrowers who have credit problems
  • Construction loans
  • When you or a real estate agent needs to act quickly on a property

Real estate investors tend to use a hard money lender because they need the loan funded quickly. Under normal circumstances, a hard money loan can be funded within one week as opposed to the 30 to 45 days that it takes a bank loan to be funded. The loan application process is also quicker with a hard money lender. They usually only need a day or two to approve your loan, and sometimes the loan can be approved the same day. This is important to a real estate investor, especially when trying to purchase a property that has a lot of bids on it. A hard money loan also gets the sellers attention quickly, and they are more likely to choose their bid over slower traditional financing methods of payment.

Borrows who have been rejected by a bank or credit unit for a loan may choose to use a hard money lender. In addition to your credit history, many banks need to see your income history. This can be problematic if you recently started a new job. Hard money lenders are more likely to look past these things and approve the loan as long as you have enough equity in your property and can repay the loan back on time.

Pros and Cons of Using Hard Money Lenders

Hard money is not for everyone. It can be expensive, but it makes for a good option for borrowers who don’t want to go through the traditional financing process. Here are the pros and cons of using hard money.

PROS

It’s fast.

Hard money lenders are focused on collateral and don’t care as much about your financial position. Because of this, you can obtain your funds from a hard money lender quicker than you would from a bank. They won’t spend all their time combing through your application to verify your income or review your bank statements. They would prefer not to take over your property. This makes it vital for you to develop a relationship with the lender. Once you do, the process tends to move along quicker, and you’ll be able to close the deal faster than other borrowers who use slower methods.

It’s flexible.

Hard money lenders tend to be more flexible than banks and credit unions. For example, they don’t use a standard underwriting process. Instead, they determine each deal individually depending on your situation. You can take advantage of this by developing a good relationship with the lender. They just might tweak things for you, like your repayment schedule. You’ll also be more likely to borrow money from an actual person and not necessarily a large corporation that hides behind paperwork.

They have better approval ratings.

Hard money lenders generally only care about collateral. So if you’re purchasing an investment property, a hard money lender will probably loan you as much money as the property is worth. Foreclosures and other negative items on your credit report are much less important so long as you are invested in a good piece of property. Some lenders might not even look at your credit score at all, which means that you’re more likely to be approved. However, most lenders will ask about your financial situation. Additionally, hard money lenders like to keep their LTV ratios low. Their maximum percentage might be 70 percent, so you’ll need additional assets. This is because low rates mean that they can sell your property quickly if they need to and they will have a shot at getting their money back if you don’t pay.

CONS

It’s costly.

Choosing a hard money lender seems like a no-brainer, but it’s not for everyone. It’s also not a perfect process. It might seem simple, but hard money is only one option. If you have good credit and time on your hands, a loan through a bank might be a better choice for you. Also, hard loans tend to be pricey, so the plan must go perfectly for it to make sense for you. Hard money is different than other loans you may have used in the past. You’ll want to familiarize yourself with all areas of your loan.

You’ll pay extremely high-interest rates with hard money, and you may even have to pay origination fees before you can get your money. If you can use another investor, it might be worth your time. For example, FHA loans will still allow you to borrow money even if your credit is not perfect. Also, an FHA 203K loan might help you pay for rehabilitation at a competitive cost if you can’t get approved for a loan due to repairs needed for your property. You’ll want to explore all of your options before making a decision.

How To Find Hard Money Lenders

The best way to find hard money lenders is to search for investors in your area. You can do this by performing a simple Google search. Try typing “your area + hard money lenders” into the search bar. You’ll need to find out who lends money based on collateral near you. The best places to look are at local real estate agents or real estate investor groups. You can also ask real estate agents for referrals based on who is in your area. Even if you don’t need money right now, it’s a good idea to reach out to a few and develop a relationship so that the process will be easier if and when the time comes.

Best Hard Money Lenders

In case your Google search turns up nothing, here is a list of some of the best national hard money lenders out there.

LendingHome

LendingHome is a national hard money lender. They are best for fix and flip loans on short-term residential homes, including single-family and multi-family units, apartments, condos, foreclosures, and short-sales. They offer up to 90 percent loan to value (LTV) and 75 percent after repair value (ARV). They also have interest rates starting a 7.5 percent. Additionally, LendingHome only charges between 1.5 and 2.5 percent in lending fees, and they offer appraisals at no extra cost to the borrower. Under these circumstances, LendingHome would be a good option for small businesses. The only downside to this hard money lender is that they only fiance short-term real estate, so you’ll need to look elsewhere if you’re looking for a permanent residential loan.

Patch of Land

Patch of Land is a national hard money lender that can get you money fast. They finance both commercial and residential real estate, such as single-family and multi-family homes, condos, apartments, offices, shopping centers, and buildings. Their prequalification process only takes a few minutes and the company prefunds their loans, which speeds up the process. The average time it takes to receive the funds from Patch of Land is around five days. Other lenders average around 10 to 15. It should be noted that Patch of Land requires more information during their prequalification process, so you’ll want to be sure you have all of your paperwork ready when you apply. When compared to LendingHome, Patch of Land has a higher interest rate and a lower residential LTV and ARV ratio.

Lima One Capital

As a national hard money lender, Lima One Capital finances both permanent residence and short-term homes. They offer bridge and short-term fix and flop loans for single-family and multi-family dwellings, condos, and apartments. Unlike Path of Land and LendingHome, they also provide a 30-year mortgage on rental properties. You can use their permanent mortgage on a single-family rental property that is unoccupied or on some single-family rental units.

Rental loans can range from $50,000 to over five million dollars with a LTV of 75 percent. You can also do a 30 year fixed or variable mortgage with interest rates that start at 4.99 percent for variable and 6.99 for fixed. On multi-unit properties that contain between one and four units, they offer short-term fix and flop loans. They also do this on apartments that contain more than five units. You can expect their fix and flop loan to include 90 percent of the purchase, 70 percent of the LTV, and financing for cash-out refinances and construction financing.

Related post