The Inner Workings of Hardmoney Loans

Starting off in the real estate market can be difficult when you are a new investor. Getting the money necessary to buy properties isn’t always easy to do. FreeandClear states that  “Although all the mortgage documents are intended to serve a specific purpose, usually legal or regulatory, the sheer amount of paperwork creates significant difficulties”. Many new investors turn to hard money loans to finance their projects because they are quick and often easier to get than traditional loans. Before applying for a hard money loan, use the following tips to ensure you can make an informed decision.

Find a Reputable Hard Money Lender

The first thing you need to do is find a reputable hard money lender. You need to ask for references from others who have been in the real estate business for a while. Hard money lenders are often individual investors who must be licensed in order to provide loans. You can check the licensing of any lender with the local real estate bureau. You want to be sure you work with reputable lenders to ensure you get the best loan possible.

Ensure You Are a Good Candidate for a Hard Money Loan

The great thing about hard money loans is that you don’t need a stellar credit score to be approved for one. Many people with subpar credit scores are able to get loans based off of the value of the property they are purchasing. The property serves as collateral for the loan. You don’t have to put down a large down payment, but you do have to repay the loan quickly. Many people pay off the loans when they sell the property for a profit. Hard money loans aren’t ideal for people looking to finance their personal home. Because the loans require such a quick repayment time and have high-interest rates, it wouldn’t be financially beneficial to use hard money lenders for the financing of your personal home.

Interest Rates for Hard Money Loans are High

The interest rates that hard money lenders charge for their loans are often higher than the rates of traditional loans of 3.99%. The lenders don’t take a down payment when they get the loan and thus need to make a profit from the loan in some way. The interest payments are high, but they are worth it for many investors. The hard money loans allow them to get the money they need quickly with little hassle.

Fees Are Often Associated with Hard Money Loans

Hard money lenders often charge an origination fee for the loans they offer. The origination fee is a fee that covers the processing of the loan. The fee will be pretty high when you apply for your first few loans. Once you have established a relationship with a lender, this fee often drops over time.

Hard Money Loans Aren’t Long Term Loans

It’s important to determine how long you want to take to pay back the loan before you apply for one. If you are looking to pay back a loan over the course of a few decades, a hard money loan isn’t right for you. Most hard money loans have a strict deadline by which the loan must be repaid. The exact date the loan must be repaid is included in the contract that you sign. Some lenders are negotiable when it comes to the payback date. If you are going to sell the property quickly for a profit, repayment of the loan in a short period of time should be easy.

Failure to Pay the Loan Isn’t an Option

Hard money lenders ensure their investment. They make sure that they will get repaid for the loan that they give you no matter what. When you agree to a hard money loan, you use the property you are buying or another property as collateral. If you fail to pay the loan, the lender can legally take the property from you. This doesn’t happen often because the people who invest in real estate through hard money loans already know that they are going to sell it for profit and repay the loan quickly.

Hard money lenders are often very easy to work with when it comes to real estate investing. They know that buyers need to get money quickly in order to get the jump on other buyers in the market. They work quickly and are able to provide you with large amounts of money in a short period of time. They are a great option for newbie investors who want to get their feet wet in the real estate market.


Finding Hard Money Lendors

Buying and flipping houses has become increasingly popular in recent years due to the numerous shows on television showing that it can be a lucrative investment to make. Unfortunately, the shows neglect to tell you how the flippers fund their projects. Many turn to hard money lenders to get the money they need quickly and easily. Unlike traditional loans from banks, you often don’t need to wait weeks for approval for the loan or have a great credit score. The loan is often based off of some sort of collateral, which can be the property you are buying. Finding hard money lenders doesn’t have to be hard to do though. The following guide walks you through a few things to look for when you start your search for a hard money lender.

Search for Local Lenders

It’s important to look locally for a lender. There are many times when lenders want to look at a property before they invest in it. It allows them to make sure that there is a potential for a flip to be a lucrative investment and that you aren’t asking for money than is really needed.

Search for Lenders with a Proven Track Record

Many people are trying to get into hard money lending because it is proving to be very lucrative. It’s a good idea to find lenders who have been in the business for an extended period of time so that you can talk to others who have worked with them before or at least read reviews about the lenders. You need to be sure that they don’t change the interest rates over time or overcharge the clients.

Search for Lenders that Allow Access to Loan Information

A professional hard money lender will be completely transparent. They will allow you to see all of the information on your account at all times. This allows you to track when payments are due, how much you have paid toward the loan and when payments need to be made. This allows you to be sure that every payment is tracked properly.

Search for Lenders with Reasonable Interest Rates

It’s important to know that hard money loans often have higher interest rates than traditional loans. You still need to make sure that the interest rate is reasonable for your loan. The average interest rate for a hard money loan should be between 10% -15%. The reason the interest rates are so high is because the loan is designed to be quickly repaid and is a huge risk for the lenders. The lenders are using the property as collateral for the loan, if you default, they will have to put in a lot of effort to get their money back, thus the need for the high-interest rates.

Search for Licensed Lenders

There are scams in the real estate investing market, so you need to take the time to look for lenders who are licensed. These lenders will have taken the time and put in the effort to prove that they are a reliable lending source. You can contact your local attorney general’s office to find out if a lender is licensed and registered in your state before doing business with them. Doing your due diligence could save you a lot of money in the long run.

Search for Lenders Who Meet in Person

Some lenders claim that you can get approved over the phone in just minutes. According to the Federal Trade Commission, “It is illegal for companies doing business by phone in the U.S. to promise you a loan or credit card and ask you to pay for it before they deliver.” It may be tempting to work with a lender that allows you to apply and get approval for a loan without having to go through the hassle of meeting people, but it’s an illegal practice that you need to avoid at all costs.

Take the time to do thorough research about any lender before applying for a loan. You want to be sure that you have read reviews from other borrowers, determined if they are licensed and registered and have the contract looked over by a lawyer before agreeing to any terms within it. This protects you from having to pay more than you should for the loan or getting taken advantage of all together.


Federal Trade Commission (August 2012). Advance Fee Loans. Retrieved from:

Hensel, Don. Hard Money 101: Everything You Need to Know About Getting Started with Hard Money Loans. Retrieved from: