Fix & Flip Financing Real Estate Financing

How To Get A Hard Money Loan

Written by Harry

If you are a small business looking to invest in your company, a land developer or even an architect, you may already be aware of hard money loans. With the inflexibility of banks or other traditional lending institutions, you may have decided that a hard money loan is the best way for you to finance a project without having to sell any property or assets.

How do you go about getting a hard money loan? Much easier than you might think. Here are some tips to go about it the right way.

Find a Good Hard Money Lender

Firstly, it’s important to do your research. The American Association of Private Lenders estimates that there are around 40% more hard money loan providers in the country than there were three years ago! So, although the market has widened, it is not subject to much regulation, so don’t just go to the first one that you come across.

Genuine hard money loan providers will be interested in your project, and they hope to build long term relationships. Some, although thankfully very few, are simply glorified loan sharks. Learn the difference before you get burned. According to Jay Garner, chief executive of Quicken Loans, a lender who has provided hard money loans nationally, companies such as theirs has a mission “to lend to people properly and responsibly, following the guidelines established by the particular agency that we’re selling mortgages to.”

Here are some ways to discern the good from the bad:

  • Reviews – ask around locally, especially with real estate companies, if there’s anyone they have heard of who is well regarded in the area.
  • Has this lender financed loans like the one you are seeking at any time in the past? It’s a red flag if they haven’t.
  • Can you meet the hard money lender, or at least someone that works for them? If not, it’s best to avoid them, as they may just want to get your money.

Applying for a Hard Money Loan

Now you have found a reliable lender you need to present your plan. Even though you don’t need the same amount of documentation as for a normal bank, you still have to come prepared.

  1. Let the hard money loan provider know the value of the property in question. This is one of the most important pieces of information for them, not your credit score. The loan will be given against this. You may need to present budgets for construction or renovation and repairs.
  2. Tell them about the area that the property is in. Have information on how much other homes/businesses went for in the area. They are looking for a good investment. Have your prices of other developments and properties in that area? You can check out zillow.com and realtor.com to do some research.
  3. Show them your financial plan for the property. You can likely get between 60 – 70% of the after-repair value of the property, but you’ll need to come up with the rest. If you have some cash in hand, then it will make the approval even quicker.

If you have a history of making risky, but ultimately good investments, then let them know.

Ensure that you get some legal advice before you sign a contract with a hard money lender. You need to make sure that you are protected within the terms of the agreement. Also, ask your lawyer about any impact that the hard money loan may have on your personal liability.

You should stay in contact with the hard money lender. Give them the information they need to show how much you want the loan. Especially in cases where they only lend to a small number of people, if you miss out, they may have decided to lend to another party.

Things to Note

A hard money loan is not the same as a mortgage or a loan from a traditional lender. The terms are different – usually the approval time is a lot less, and you require less documentation. However, you also will have to pay the loan back much quicker than a traditional loan and at a higher rate of interest. If you think that this works in your favor and that you still stand to benefit from the transaction then it could be a fantastic decision.

Resources:

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

https://www.nytimes.com/2019/06/11/business/risky-borrowing-shadow-banking.html

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With a bad credit environment in Florida where it can become very difficult to secure a loan to keep out of dire financial straits and you need to keep your properties from being foreclosed upon or...

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Harry

10 Comments

  • Im only looking for a $6,000 loan I am ready to close earnest money is paid and inspection completed. I am a contractor will be doing my own renovations. I have references if needed.

  • Offer just accepted on our second flip project. Need 50K, we have the rehab money and ARV is $102K. We have a project completed that profited $20K on our own. We are incredibly educated on the process as well. Signed on 6/8/12 need 50k ASAP will provide joint venture agreement and interest/points agreed upon.

  • I am looking for a hard money lender for a $49K loan on a $100K property in Southfield, MI. I have $10K. The property is selling for $59K. Conservative comps at $100K.

  • Hi im a property specialist and im looking to flip properties in 30-90 days or less I found a deal online HARD MONEY LOAN NEEDED!!!! for 2 fix & flip ASAP!! Home needs rehab, total loan amount is $60.000 each ***Im an Experienced Investor/ Realtor. In contract, title is done ready to close. 60% LTV & 60% LTV ***Exit Plan, & Title, done. Apprasial Also Done on Vanguard. Pre Payment OK if it a must….. Need to close 10 days, less would be even better.. ( 60k contract price & cash total ) Only looking for a Short Term type of loan, interest only. Please contact Tammy 407 929 9161 To discuss terms

    Details:
    Loan Location: Palm Bay , Florida
    Property Type: Residential
    Loan Amount: $ 60,000.00
    Loan to Value: 65%
    Property Value: $ 100,000.00
    Loan Term: 1 Years
    Credit Score: 602
    Down Payment: None
    Loan Type: Purchase
    Contact Phone: N/A