If you’re a real estate investor looking to get a hard money loan but you don’t know what it is or aren’t familiar with it, then this primer is perfect for you.
It is a private loan with more flexible terms for business purposes.
There are benefits to getting a hard money loan. First, it is very fast. You can close within 5-10 business days. Second, the loan is based on the asset’s value and not the borrower qualifications. So those who normally won’t qualify for a traditional loan might be able to get a hard money loan.
The flexibility offer by a hard money loan helps investors buy properties at a discount
It starts with the borrower sending an application. They have to include information such as the details of the deal, their past experience, and liquidity for down payment and construction costs.
Depending on the loan-to-value (LTV) and loan amount, the lender might confirm the value of the property by performing a full appraisal or using a broker price opinion (BPO).
A hard money lender typically funds 85-90% of the purchase price and 90-100% of construction costs.
When you get traditional financing, down payment is typically 20% and you’d need a significant level of income to satisfy DTI requirements. Your income needs to be around $140,000 a year without any other debt.
For a hard money loan, down payment is 10-15% and financing is based on the asset’s value not your income.
The lender usually reimburses the borrower’s construction expenses by draws after completing a specific milestone. As a borrower, you’d be expected to provide a plan and set the milestones for your rehab.
After you complete each milestone, the lender will send an inspector to check the work. If it’s satisfactory and meets what you said you’d do, the lender will release the construction loan payment.
Origination fees are usually 1-2% of the loan amount and 9-10% for the term of the loan. For example, if your loan is $900,000, your origination fees at closing will be $9,000 and then you’ll be paying $6,750 per month.
All parties on title have to sign the loan documents. After that, funding gets wired directly to escrow.
Unfortunately, hard money loans can’t be used for personal property. So this isn’t for homeowners. The exception is when you buy a 3-plex or more, live in one and rent out the others.
A hard money loan is also not for people with no skin in the game. You won’t get 100% financing. So if you don’t have any money, partner with other investors who will need to sign on the loan as well.
Are you aiming to get the best rates for your hard money loan? There are things that can help you get lower rates:
Conventus is a San Francisco-based hard money lender. They’ve already funded over $1 billion and are lending in over 22 states with more to be added soon.
To give you a general idea about the terms Conventus offers, here are some figures:
Here’s some numbers of what Conventus usually offers with hard money loans:
For those interested in applying for a hard money loan with Conventus, here are the requirements:
If you don’t meet any of these requirements, it won’t automatically mean that you can’t get a loan. It means that you might get higher rates.
Are you looking to purchase or refinance an investment property? Then Conventus is here for you.
For brokers with a BRE license, earn referral fees from Conventus in California by referring your clients to us.
If you’d like to ask about getting a hard money loan, just reach out to me at Sean@everythingrei.com or call me at (408) 393-8448
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One of my friends has been asking me to find a suitable financial loan for our business expansion. Thank you very much for clarifying what a hard money loan is, and how quick it is to get the procedures done. I think I better consult with an expert as soon as possible so I'll make the right decision.