A hard money loan is a type of loan that real estate investors can secure without putting their credit on the line. The hard money loan is funded by private sources that don’t necessarily follow the set of rules that banks and other traditional lenders use. The money is often used to secure a property to flip a home (meaning to purchase, fix up, and sell a property at a profit), which is how investors can grow their income. Here are some of the most commonly asked questions about this type of loan.

What needs to take place before I can get a hard money loan?

These types of loans are essential for buyers seeking fast cash to improve a property to resell. The funds can be dispersed once the paperwork has been received. You will need to have the title, proof of insurance, and an appraisal to receive the loan.

How long are hard money loan terms?

The time frame for this type of loan is usually one year. However, that can be extended based on the project and time frame you are looking for. Typically, the longer the loan is in place, the higher the interest rate might be.

What can I expect for an interest rate?

The typical interest rate on a hard money loan can range from 8% to 12%. There are hard money loan lenders that will defer the interest rate until the remodeling phase is complete. This is an attractive point for borrowers struggling with money or who require a longer period to fix up a home that’s in poor condition.

Is the money able to be used for repairs?

The money received as part of this loan can be used for property repairs. The lender may ask for an itemized list of repairs and invoices during the remodeling phase. Once they have these documents, you will access the funds to pay for the repairs.

Will my credit be pulled for loan approval?

The short answer to this question is no, but there are times when it may be run. If you are a new borrower, the lender may run your credit to check past foreclosures or bankruptcies.

Most hard money loans will require between 30% to 40% down before the funds can be dispersed. This shows that you are serious about buying and reselling the property. The lender wants to be successful, just like you do. They will take steps to keep their money safer but cut out the red tape, making it easy for you to get the cash you need to keep moving forward. To learn more about securing a hard money loan for your next project, please contact us today.