When you need funding to put towards your next fix-and-flip or rental investment property, hard money loans are a convenient and fast way to access that capital. A hard money loan is a short-term loan secured by property rather than just your credit score and credit history. In this case, the property is your real estate investment.
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Hard money loans can be beneficial because of the streamlined approach and the use of property as collateral versus credit. Compared to traditional loans, hard money loans have fewer qualifications, easier application processes, and faster approvals and closings. To help you in your research, here are the top 5 most frequent questions:
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1. What is Hard Money Lending?
When trying to get a hard money loan, you will go through a hard money lender. Hard money lender is a term that refers to non-banking lending, lending through a private person or organization. These lenders will use criteria they're comfortable with when deciding who to lend to, most commonly using the value of the property to determine loan amounts and rates.
2. How Do Hard Money Loans Work?
In the hard money loan process, the lender provides the funding for your investment under a contract that outlines the borrowers amount, interest rate, term length of loans, and other various requirements. With hard money lending, the lender gets a lien against the real estate property which acts as security or collateral for the loan. The borrower makes regular payments and pays the loan off according to the agreed upon terms.
3. Pros of Hard Money Loans
Many veteran real estate investors use hard money loans to help fund their properties. The reason they choose hard money loans is because of a number of pros: speed, flexibility, and fast approval process. Hard money loans are known for how quick it is to apply and get funding, which is crucial to landing the best deal for a property. Hard money lending also offers flexibility for the borrower, especially those who cant traditional funding. They can use the property as collateral instead of their own credit, which means they don't have to worry about a lower credit score or higher personal debt-to-income ratio. Lastly, the likelihood of investors being approved is higher than traditional loans since the loan is based off of the property.
4. What is the Interest Rate on Hard Money Loans?
Interest rates for hard money loans will vary based on the lender. Private individuals will apply their own rates based on market and other industry lenders, but the current market is currently anywhere between 10% - 18% interest-only. At Dryden Capital, we have great rates for our hard money loans. For example, our bridge loans start at 6.99%. If you're curious about our fix and flip or rental loans, check out our loan options.
5. What are Points on a Hard Money Loan?
Points to close on a hard money loan will also vary based on the lender. Right now, many lenders point rates fall between 2% and 10% of the loan amount. Lenders will base this percentage on the risk, equity, and experience of the borrower. Because of this number, its important to have a developed strategy for your investment property, especially if you're a beginner.