5 Tips to Get a Cheaper Hard Money Loan

In this post, I’ll give you 5 quick tips to help you lower your rates when getting a hard money loan.

For the past year, I’ve been working as a hard money lender. It’s been an incredibly fulfilling job, and during my time in the industry, I’ve learned some tricks that you can use to get better rates on your hard money loans. Here they are:

Ask for lower LTV

Most people who are looking for a hard money loan want to maximize their leverage so that they can buy bigger deals and potentially make a bigger profit.

But when they do that, they expose themselves to more risk and end up paying more for the loan. By taking 10 or 20% less than the maximum, lenders will significantly reduce the note rate and the origination fees for the loan because it becomes a safer loan for them.

A loan that would normally cost 10% and 1.5% point in origination fees can go down to 7.5% and 0.5% in points. If you have the ability to put more money down into the deal, you can save more money on the loan and earn more profit from your flip project.

Have a Higher Credit Score

The minimum credit score that we will accept is 620. In some very rare instances, we can lend if the score is slightly below 620 and if the LTV is really low as well. But even in those cases, the rates can be extremely high.

The higher your credit score, the lower the rates go. Hard money lenders will pull your credit to verify your score but won’t post the loan amount on your credit, so keep that in mind when getting a loan.

Location Matters

Rates also vary a little bit depending on the location of the subject property. Getting a loan for a property in San Jose is a lot cheaper than getting a loan in Detroit or another location. In general, hard money lenders won’t lend in rural areas or places with low population density. Your best bet is to focus on places with lots of people and businesses and always check with your lender before putting in an offer.

Experience matters

It goes without saying that people who are more experienced and do more business with one lender get better terms. Like any business, we’re willing to make less profit on one client if it means that we’ll get more revenue from them over time by doing a lot of deals with them.

More experienced investors also act as influencers and points of referrals that send us more clients. Since they’re more experienced, we trust their judgment better and it becomes a safer loan. Because of that, we’re more willing to hook them up when it comes to higher LTVs, lower rates, and cheaper origination fees.

Negotiate!

This is a tip that no lender wants to tell you, but I’m going to lay it all out here. Everything in this industry is negotiable, and if we really want your business, there are ways to bend the rules a little bit to do your loan.

Going out and getting multiple bids generally works in your favor because we are hyper-competitive and will pretty much match or beat a quote from any other hard money lender if you’re experienced or if you have a really good deal. So it’s always in your best interest to get multiple quotes. But if you don’t have another bid, you’ll be given the standard rates.

Conclusion

Ultimately, we want to win your business so that you become our clients for life and potentially refer your friends when they’re looking for a hard money loan themselves.

Those are the 5 tips that you can use to get a cheaper hard money loan. If you’re looking for a hard money loan or have any questions about the hard money lending process and feel free to schedule a call with me.