How do I get a hard money loan?
The process is explained more fully in the "Apply For Loan" section of this website, but it is never very cumbersome. Unlike a bank loan, you will not need to fill out much more than basic information about you and the property. The lender will generally not care about how much cash you have in the bank, how low your credit score is (up to a point), or whether you are putting your own money in the deal. The lender will simply evaluate the current and fixed-up value of the property, verify clean title and that the lender will hold a first lien position, and make sure you have the ability to rehab, sell, or refinance the property within the term of the loan.
I have a low credit score. Can I get a hard money loan?
This will depend on the loan you request. For instance, if you have found a great deal on a property from a distressed seller, and you intend to merely "flip" the property, then all you need is short term capital to carry you until you re-sell the property, and credit scores are not that relevant. If however, you intend to rehab the property and carry it as a rental, then you will be forced at some point to refinance the hard money loan. In such a case, the hard money lender will take a closer look at your credit to determine why your scores are low. In some circumstances, the hard money lender may reduce the amount of the loan or require you to put up additional collateral.
How quickly can I get a hard money loan?
One of the greatest things about a hard money loan is the speed at which you can get one. Assuming all your paperwork is in order, approvals can be granted in as little as 24-48 hours, and settlements can often take place in less than a week, but not always. Remember that the lender will often have to make an appraisal of the property, order and inspect title work, and have lender documents drafted. This could take anywhere from days to weeks depending on the circumstances but, in an emergency situation such as foreclosure, most hard money lenders can expedite this process to accomodate the borrower.
Can I get a pre-approval letter?
Yes. If your real estate transaction requires a lending pre-approval letter, one of our lenders can provide that to you, most of the time in the same day it is requested.
What are the lender fees?
You will generally have to pay 4-10 points. One point equals 1% of the loan amount. Some or all of these points may have to be payed up-front, but many lenders will build the points into the back of the loan (the lender will increase the loan amount to cover the points). You will also certainly have to pay for an appraisal of the property, some document preparation fees, and perhaps some underwriting and/or application fees. Each lender is different and, when you apply for the loan, these fees are disclosed to you as required under State or Federal law.
When is a hard money loan not appropriate?
Hard money removes much of the red tape and B.S. from the lending process, but it is not appropriate in some circumstances:
- When you need money for "long term." Many hard money deals are for no more than 6 months to 2 years;
- When the deal is "tight." Don't look for hard money loans higher than 65-70% of the property value, if that. These lenders aren't interested in losing money, and the only way to try to insure that is to lend based upon very conservative loan-to-value ratios;
- Oddball properties. Not many hard money lenders are looking to get involved in farm operations, mobile homes, or geo-desic domes. Don't ask;
- Principal residences (sometimes). Many hard money lenders don't want to deal with the hassle of State and Federal consumer mortgage lending laws, so they will only lend on commercial or investment properties.
Will you lend on a primary residence?
Hard Money World is not a lender and, therefore, does not make any loans. Some of our affiliated hard money lenders will lend on a primary residence, but many do not. State and Federal laws have strict disclosure requirements for consumer mortgage loans, as well as "caps" on interest rates that most hard money lender are not interested in. If you are interested in a loan for your primary residence, contact us and we can refer you to a properly licensed lender that can help you.
I am days away from foreclosure. Can you help? Can I get a loan?
MAYBE Hard money loans can happen very quickly, so depending on how soon your upcoming foreclosure is, one of our affiliated lenders may be able to close a loan beforehand. If not, there still may be many options available to you to stop the foreclosure proceeding. If you contact us, we will try to help you find a solution. Whatever you do, do not allow your property to go to foreclosure without reviewing all your options with a real estate attorney or consultant experienced in these matters.
Why shouldn't I just use my home equity credit line?
You can, and certainly the interest rate is bound to be much lower than a hard money loan. Just remember that the more credit you take out on existing credit lines, like the ones you may have on several of your rental properties, the lower your credit score will go, as potential creditors don't like to see you "maxing out" your open credit. It is a sign of potential distress. Most hard money lenders are private companies or individuals and do not report to the credit bureaus, so your credit scores are better protected.
What are the loan terms?
Every hard money lender has different lending criteria as well as different point structures and interest rates. As a general rule, count on an interest rate anywhere from 13-18%, and you will probably have to pay anywhere from 4-10 points. Some lenders require points to be paid up-front, while others build them into the loan amount. We have come to find that each hard money deal is unique and it is impossible to provide exact numbers until the deal is reviewed and approved by the lender.
Does the lender take the deed to my property?
Absolutely not! Aside from some of the legalities involved with that, hard money lenders are not interested in owning your home or property, only receiving a higher than average interest rate return on their money. If you are in distress or foreclosure and need to sell your property, we may be able to help you find a qualified buyer to settle with you quickly. Otherwise, contact a local real estate agent, and always seek competent legal advice before deeding your property over to anybody.
Are there pre-payment penalties?
Sometimes yes, sometimes no. This will depend on the individual lender and your borrowing needs. Some hard money lenders will give you a slightly better (as in lower) interest rate if you agree to a pre-payment penalty, as this gives the lender some assurances of a good interest rate return for a guaranteed period of time.
Can I get cash-out to pay tax liens, judgments or other debt?
Judgments and liens that appear on your title MUST be paid off at closing but, after payment of these items, you may use any additional equity in your property to get cash at closing up to the lenders "loan-to-value" limits.
For instance, if you have a property valued at $100,000.00, and owe $30,000.00 in tax liens, and the lender allows you to borrow up to 60% of the value of your property, then you will be able to take an additional $30,000.00 at closing for your own use, less any applicable closing costs and lender fees.
What documents do I need to get started?
Review the "Apply For Loan" section of this website for full instructions, but generally you will simply be required to complete a loan application, and provide a copy of any purchase contract. If you have an appraisal of the property, you will want to provide that to the lender as well. You will NOT need to document any income or assets as part of your approval process, except as it relates to additional collateral that may be required by the lender.
Do you allow secondary financing or seller-held notes?
ABSOLUTELY! A hard money lender does not care about where you come up with the remaining money to buy the property, whether from a relative, seller held promissory note, or bank robbery (just kidding). Since the lender is in first lien position, his or her money will be the first amounts paid back upon foreclosure and, thus, doesn't care about the second note holder.
Do you check the title? Are there title fees?
ABSOLUTELY! As with a conventional loan, every hard money lender will require you to pay for a title search of the property to make certain that you have proper title to the property and the lender is being put in proper first lien position. You will also have to pay for the title/escrow company to close your loan, record a mortgage or deed of trust in the land records, and issue lender's title insurance to protect the lender's interest in the property.
Is there a limit to the number of properties I can buy?
No. Each deal stands on its own. If it makes sense to the lender, you will get the loan regardless of how many properties you own.
Do I have to put my own money in the deal?
Not necessarily. The lender will generally lend you up to 65% of the property value and, unlike a conventional lender, will not reduce the loan amount just because the purchase price is much lower than the property value. Thus, if you buy right, you may be able to get a loan for 100% of the purchase price, although most hard money lenders will require you to at least pay closing costs.
For example, if you find a property worth $100,000.00 and get the sellers to unload it for $60,000.00, a hard money lender may well give you the full $60,000.00 purchase price.
On the other hand, if you are buying a rehab property that is worth only what you are paying for it until such time that it can be repaired, the lender most likely will do one of two things: 1) give you only up to 65% of the purchase price (which means you must find the other 35%); or 2) give you the full purchase price and require you to establish a construction escrow to insure you make the repairs to increase the value substantially higher than the original purchase price, this protecting the lender's investment.
Do I need an appraisal?
Maybe. It depends on the lender's ability to access the property and knowledge of the local real estate market. In most cases where the lender is lending far from its local area, an appraisal will be required.
Where do you lend?
Hard Money World is not a lender and, therefore, do not lend anywhere. However, we have an evergrowing network of private money affiliates in many states. Please contact us for a current list of areas in which we can provide a duly licensed lender.
Do I need to provide personal income statements?
No, but if there are any rent rolls or documents related to the property which is the subject of the loan, you will have to provide those. The lender will also need to have a copy of the real estate contract.
Are you a licensed lender?
Hard Money Bankers is not a licensed lender and does not lend money. All loans are referred to, processed and approved by, and settled through, an affiliated lender who maintains all appropriate state licensing.
What type of properties do you fund on?
Currently, the hard money lenders affiliated with Hard Money World mainly deal in residential properties and "light" commercial, such as 1-4 unit properties, smaller apartment buildings, small retail shops or office buildings, small bars or restaurants where there is real estate, single family homes, and even some small strip shopping centers.
Are the loans fully amortizing?
It depends on the circumstances. Many of the commercial/investment hard money deals are interest only, while many of the foreclosure/bankruptcy bailouts or primary residence loans are fully amortizing.
Do you lend on purchase price or appraised value?
Most hard money lenders will lend on appraised value. Thus, if you purchase a property far under its value, the lender may lend you 100% of the purchase price. You will, however, always have to pay closing costs.
Can I roll closing costs into the loan?
Some of the hard money lenders will allow you to roll points into the loan. However, most other title and lender fees, or other closing costs, will have to be paid by you at closing.
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