Find Best Private & Hard Money Lenders Near You

Hard money lenders are individuals, or hard money lending companies who make loans that are secured by investment real estate. The name “hard” comes from the fact that their lending decisions are based primarily on the value of hard assets. They are also called “asset-based” lenders. Since the underwriting criteria of hard cash lenders are simpler, they can close much more quickly than traditional banks. This can mean that a hard money mortgage carries more risk for the lender which results in higher interest rates, higher fees, and shorter terms than bank loans.

Hard money lenders make loans for investment properties, not owner-occupied. They will lend on residential investment properties of all types. This includes individual rental properties and multi-family properties like apartment buildings. The value of the property, usually the ARV or After Repair Value will be determined by an appraisal. If they approve the request, a term sheet containing the details of the loan is given to the borrower to review. The term of a hard cash loan is short, typically from 6 to 18 months. Some lenders will offer loans for up to 3 years. Hard money loans can be used for land purchases, residential construction, or to renovate and then refinance investment properties like an old apartment complex. They are also useful to rehab and then to sell properties (“fix and flip” projects). “Buy and hold” investors use them as a bridge loan while putting together permanent financing.

Hard money lenders rely on the value of the asset and do not spread their risk by requiring good credit history from their borrowers like traditional banks. For this reason, their rates and fees are higher than those found at a bank. A nationwide search of hard money providers shows that interest rates range from 8% to 18%, with fees from 2% to 6% of the loan amount. The rate can be affected by the Loan to Value (LTV) ratio. A higher down payment can sometimes lower the interest rate.

Hard money lenders are not regulated as an industry the way that traditional banks are regulated. Some states have regulations or licensing that is required in order to be a hard money lender, but it is not uniform throughout the US. There are state laws related to lending in general, such as usury laws, including limits on interest rates and fees. Hard money lenders have to comply with all such consumer protection laws in their state. If they are lending to a borrower who is located in another state, they have to comply with that state’s laws as well.

Although hard money lenders’ credit standards are much more flexible than a bank’s, and you can get a hard money loan with bad credit, a legitimate hard money lender will still check your credit. The borrower’s experience and a reasonable business plan for the project can mitigate a lower credit score for a hard money loan. That is because the lender is relying on the value of the property and their ability to sell it for enough to repay the loan if the borrower defaults. A lack of both credit and experience may require the borrower to take on a partner with better credit or to put more equity in the project.

It is possible for an experienced, successful real estate investor with good credit to borrow enough to finance the entire project from some lenders, but that is not typical. Most hard money borrowers should expect to make a down payment of from 25% to 40%. Your down payment may depend on your credit and experience.

Three good reasons to use hard money lenders are speed, flexibility, and easy property valuation. Hard money lenders do not have to comply with the multitude of regulations that banks face. This makes it possible for them to process a loan request and close within a few weeks. That can make the difference in getting many investment real estate deals done. Hard money lenders are more flexible in financing speculative real estate deals and properties than banks. Investors whose business is flipping houses or picking up foreclosures rely on hard money loans. Some hard money lenders are comfortable financing used manufactured homes and run down mobile homes that banks won’t finance. Hard money lenders will also use a property’s ARV, or After Repair Value to determine the loan amount. Most banks will not do that without extensive plans and construction contracts that short term investors don’t use.

Unlike traditional commercial lenders who do a variety of loan types, hard money lenders are focused on asset-based loans. They are knowledgeable about the business of their borrowers. They look at credit, but they largely underwrite the entire project and the borrower’s ability to bring their plan to completion. The lender needs to be confident that the investor’s plan is reasonable and achievable and that the borrower has the experience to pull it off on time. If you are just starting out and don’t have pristine credit, you may want to consider partnering with an experienced investor for your first few deals.

“Private money” is a loan given by a person or a group of people you personally know. A private money lender may be a family member or friend who trusts you based on your personal relationship. It can also be a commercial company to whom you are referred by your common friend or partner. Private money lenders don’t necessarily have lending as their business. However, many hard money lenders advertise themselves as “private money lenders”, just because many people confuse these terms and are looking for loans by using “private money” as a keyword during online search. By including this keyword on their websites, lenders have their websites shown to such searchers.

Hard money lenders will need an appraisal of the property involved, a detailed plan with a reasonable exit strategy, proof of identity, and possibly a credit report. They will not lend 100% of the project costs, so you will have to make a down payment. To close the loan, they may require that you sign a promissory note and mortgage or deed of trust.

Licensing of private money lenders is done at the state level. Not all states require licensing. But, for example, in New York, a had money lender must have a lender’s license to operate legally. All those who provide hard money for real estate investors have to abide by usury laws and restrictions on predatory lending.

If a real estate investor and their project can qualify for a bank loan, and they have the time it takes to go through the bank’s approval process, they can obtain financing at the best possible cost. However, most banks are unwilling or unable to lend on a speculative venture. Sometimes the bank’s loan covenants restrict the investor’s ability to do other deals until the loan is paid off. Flexibility in underwriting and terms and the speed with which the loan can close often make private money loans more attractive to real estate investors.

On the plus side, private money lenders may have no, or low minimum credit score standards. Their process is simpler and more transparent and can be completed quickly. For properties being renovated, they will base the loan amount on the After Repair Value, not the as-is value. The downside of private money is that the loan will be for a short term and the costs are higher than for a bank loan. However, the short term usually fits with the borrower’s needs, and the costs can be accounted for in their budget.

Ask everyone in your real estate network if they can recommend private or hard money lenders. This includes your attorney, your CPA, any brokers that you work with, and other investors that you may know through your local investment club. Internet searches will show you some lenders. Remember that their sites are advertising and without a personal referral you will need to research them carefully. HouseCashin has devoted time and resources that you may not have to create a dependable directory of private and hard money lenders. We are focused on giving you the best tools to safely find the funds you need.