We’ve Got Answers to Your Questions
Want to learn more about the Private Money/Hard Money lending space and need answers quick? Here you go!
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- Can I extend the term on a hard money loan? - Yes, it's possible to extend a loan. CV3 extensions cost 1% and are available in 6-month increments, limit of 2. Extensions are approved on a case-by-case basis at the noteholder’s discretion.
- Can I get a hard money loan with bad credit? - Hard money lenders focus on the value of the collateral property rather than the borrower's credit score, so it's possible to get a hard money loan with bad credit. A bad credit score, however, can result in a borrower paying a higher interest rate as compared to a borrower with a good credit score.
- Can I refinance a hard money loan? - Yes, it's possible to refinance a hard money loan with the same or another hard money lender or traditional lender.
- Can I use a hard money loan for owner-occupied properties? - Hard money loans are typically used for non-owner-occupied investment properties, but some private lenders may offer owner-occupied hard money loans.
- Can I use a hard money loan for renovations? - Yes, hard money loans can be used for property renovations or rehab projects. Most private money lenders will fund 100% of rehab costs as part of a loan and include those costs in the calculation of the LTV (loan to value).
- Can I use a hard money loan to buy a property at a foreclosure auction? - Yes, hard money loans can be used to buy properties at foreclosure auctions.
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- How can I find a Private Money/Hard Money lender? - If you use a broker, they will have contacts with lenders who best meet your needs. Realtors and conventional mortgage lenders can also provide referrals. The American Association of Private Lenders, Bigger Pockets or Connected Investors provide directories and resources for financing.
- How do I choose a Private Money or Hard Money Lender? - Do extensive due diligence when selecting a lender. Oftentimes the lowest advertised rate is not the actual rate you will receive. Choose a lender based upon their reputation and customer reviews as well as the total deal package (rate, term, points, fees, penalties, etc.). As a real estate investor, you need a trusted capital partner relationship just as you have with your business bank, so you can fund your deals consistently and quickly with no surprises at closing.
- How is a hard money loan different from a bridge loan? - A bridge loan is often a type of hard money loan. A bridge loan is a short-term loan used to bridge the gap between the purchase of a new property and the sale of an existing property or the time required to qualify for a conventional mortgage loan. A hard money bridge loan is a short-term loan typically used for non-owner-occupied investment properties, not owner occupied properties.
- How long does it take to get a hard money loan? - Hard money loans can often be funded within a few weeks, depending on the lender's underwriting process, the specific details of the property and the complexity of the transaction.
- How long is the typical loan term for a hard money loan? - The loan term for a hard money loan is typically between six months to two years. Rental property loans can be long-term loans.
- How much can I borrow with a hard money loan? - The loan amount for a hard money loan is typically based on the value of the collateral property, and can range from tens of thousands to millions of dollars. Generally speaking, the range on a single asset (property) is between $100,000 to $1,500,000. Cross-collateralized refinancing on a portfolio of stabilized rental properties can reach $10,000,000 or more.
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- What are the fees associated with a hard money loan? - Fees can vary, but common fees include origination fees, points, and closing costs.
- What happens if I default on a hard money loan? - If you default on a hard money loan, the lender can foreclose on the collateral property and sell it to recover their investment.
- What is a hard money (or private money) loan? - A hard money loan is a short-term loan provided by a private lender, typically secured by real estate, and used for investment purposes.
- What is cross-collateralization in hard money lending? - Cross-collateralization is when a lender uses multiple properties as collateral for a single loan.
- What is the difference between a direct lender and a broker in hard money lending? - A direct lender is a company that lends money directly to borrowers, while a broker connects borrowers with lenders to source the best loan option, then earns a commission for their expertise and connections.
- What is the difference between a hard money lender and a private money lender? - The terms hard money and private money are often used interchangeably. Hard money lenders of the past had some bad reputations for charging exorbitant interest rates to borrowers. The industry has matured with the proliferation of banks, private investment funds and Wall Street investors into the space, therefore private money lenders follow more consistent lending and underwriting guidelines.
- What is the difference between hard money and traditional mortgage lending? - While hard money (or private money) lending typically involves higher interest rates, it focuses on shorter loan term loans on non-owner-occupied (investment) properties, and requires less stringent underwriting standards than traditional lending. Therefore, it is generally faster and easier to apply and close a hard money loan.
- What is the process for getting a hard money loan? - The process typically involves submitting a loan application and documentation, such as property information and financial statements. Following the completion of the loan package, the file is submitted to underwriting where it will go through a due diligence process and any remaining conditions will be cleared. Once cleared for closing, the borrower will sign all loan documents and the loan will generally fund same day or within one business day.
- What is the typical interest rate for a hard money loan? - Rates fluctuate with the market therefore the interest rate for a hard money loan can vary. Rates are also dependent on location, LTV, borrower experience and credit score, but it's usually in the range of 7% to 13%.
- What is the typical loan-to-value (LTV) ratio for a hard money loan? - The LTV ratio for a hard money loan is typically up to 70% or 80% of the collateral property’s value.
- Who can qualify for a hard money loan? - Qualification for a hard money loan is typically based on the value of the collateral property rather than the borrower's creditworthiness or income. Other factors may include the experience of the borrower and the exit strategy for the property.
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