Looking for hard money lenders to fund your next real estate deal?
Then you've come to the right place.
Here, we're going to explain what hard money lending is, how it works, the pros and cons, factors to consider, and finally, 10 places to find hard money loans.
Let's dive in.
What is a hard money lender?
Hard money lending is a type of lending where the lender provides financing to a borrower based on the underlying asset being financed, rather than on the credit worthiness of the borrower.
In other words, hard money lenders are more interested in how likely you are to repay your loan based on the value of the property you're borrowing against, rather than your personal credit history or other factors.
It’s particularly useful for real estate investors because it provides a fast and easy way to get financing for your next deal.
(Much faster, typically, than a bank)
Hard money loans can be used to finance…
- Commercial Real Estate
You can think of hard money lenders as an alternative to traditional loans — one that’s faster and more flexible, but carries higher interest rates (the average hard money interest rate, according to Bank Rate, is around 11% to 13%.
The Pros & Cons of Hard Money Loans
When it comes to the pros and cons of hard money loans, the first thing to understand is that private money is almost always better — if you can find individuals willing to fund your deals at an agreed-upon rate (typically 8% to 9%), you’ll get better rates and you’ll have more control over the process.
As a general rule, finding your own funding is a better long-term strategy for real estate investors.
Having said that, there’s nothing wrong with using hard money lenders if you’re in a bind or need to keep momentum.
Here are some pros and cons to be aware of.
- Hard money loans are quick and easy to get.
- They can provide you with the capital you need to close a deal quickly.
- They're great for short-term deals or when you need to move fast.
- Approval is based on property, not credit history.
- The interest rates are typically much higher than traditional loans.
- The terms are usually shorter, so you need to be prepared to pay the loan back quickly.
- You're limited to how much you can borrow.
- Often require large down payments (20% - 30%).
- Might need a proven track record of successful real estate investments.
5 Factors To Consider For Hard Money Loans
Obviously, not all hard money lenders are created equal.
Some are much more reputable than others.
Beyond the pros and cons listed above, here are some factors that you’ll want to consider to vet hard money lenders.
The most important factor to consider when vetting a hard money lender is its reputation.
Do your research and read reviews from other borrowers.
Are they easy to work with? Do they provide quality customer service? How quick are their approvals?
Another important factor is how quickly the lender can approve your loan and how quickly they can fund your deal.
Some lenders are much faster than others. Make sure to reach and get a clear answer about the turnaround time on their loans.
Another factor to consider is how flexible the lender is.
Can they work with you on the terms of the loan? Are they willing to make modifications to the loan if needed?
A good lender will be willing to work with you personally and create a tailored experience for your specific needs.
4. Loan Rates and Terms
Finally, you'll want to look at the interest rates and terms of the loan.
Some lenders have very competitive rates, while others are more expensive. Make sure to compare the rates and terms among different lenders to find the best deal for you.
The hard money lender isn’t the only one taking a risk. Because of their high interest rates and short terms, these loans can be difficult to pay back if your property doesn’t turn a profit like you had hoped. So it’s absolutely critical to go above and beyond on your due diligence of the property before using a hard money lender to fund the deal.
Hard money loans aren’t without their fees — which can often stack up to $3,000 to $5,000.
The most common fees on hard money loans are…
- Origination fee
- Broker fee
- Application fee
- Underwriting fee
- Doc prep fee
- Processing fee
- Funding fee
Getting Approved for a Hard Money Loan
Getting approved for a hard money loan is relatively easy.
They will usually do a credit check but they’re mostly just looking to make sure you don’t have a jaded history of defaulting on borrowed money — a score of 600+ should be good enough.
The lender will also want to see evidence that you're an experienced real estate investor, so having a solid track record is important.
They'll also want to see that the property you're borrowing against is worth enough to cover the cost of the loan.
Typically, hard money lenders will require a down payment of at least 30%.
In terms of the timeline, you can usually expect a decision within 72 hours after you've provided all of the necessary information.
Then the lender will order an appraisal and fund the loan within a few days of receiving the appraisal.
You can safely expect to get your funding within 10-15 days from a hard money lender if the process goes smoothly.
10 Places to Find Hard Money Lenders To Fund Your Next Deal
Now that you know how to vet hard money lenders to determine if they’ll work for your investing business, here are 10 places to find them.
The internet is a great place to start your search for hard money lenders.
Just do a quick Google search for "hard money lenders near me" or "private money lenders" and you'll get a list of options to explore.
2. Attending Local REIA Meetings
Another great way to find hard money lenders is to attend local REIA meetings.
Many of these meetings will have a panel of lenders who are willing to fund deals.
You can also chat with other investors at the meeting to get recommendations for good lenders.
3. Local Real Estate Agent
If you already have a relationship with a local real estate agent, ask them for recommendations for hard money lenders.
Many agents have relationships with local lenders and can put you in touch with the right person.
BiggerPockets is a great resource for investors of all levels and it's even a great place to find hard money lenders.
Check out their directory with a ton of hard money lenders options.
5. Scotsman Guide
The Scotsman Guide is a publication specifically for mortgage brokers and bankers.
It's a great place to find hard money lenders who are looking for quality borrowers.
Here’s their directory.
6. RCN Capital
For the final five options, we’re going to give you more specific hard money lender recommendations. The first is RCN Capital.
This lender is specifically for real estate investors and offers quick approvals and funding.
Interest Rate - 9.99%
Loan Amount - $75,000 to $5,000,000
Minimum Credit Score - 580
CoreVest is another great lender for real estate investors. They offer a wide range of loan products and have fast funding times.
Interest Rate - 10.75%
Loan Amount - $50,000 to $5M
Minimum Credit Score - 620
8. Patch of Land
Patch of Land is a popular online marketplace for real estate investors. They have a wide variety of lenders to choose from and you can get funded in as little as 72 hours.
Interest Rate - 6.99%+
Loan Amount - $100,000 - $10M
Minimum Credit Score - 620
9. Lima One Capital
Lima One Capital is a hard money lender that focuses exclusively on commercial and residential real estate. They offer fast approvals and funding.
Interest Rate - 8.99%+
Loan Amount - Up to $5M
Minimum Credit Score - 620
10. Bridge Lending Group
Bridge Lending Group is a national hard money lender that offers a wide range of loan products. They have fast approvals and funding.
Interest Rate - 5.75%+
Loan Amount - $150,000 - $5M
Minimum Credit Score - 600
Alternatives to Hard Money Lending
If you're not able to find a hard money lender, or if you're looking for other options, here are a few alternatives.
Crowdfunding is becoming an increasingly popular way to fund real estate deals. With crowdfunding, you can raise money from a group of investors online. This can be a great option if you don't have the funds to cover the entire deal yourself.
2. Line of Credit
If you have a good credit score, you may be able to get a line of credit from your bank. This can be a great option if you need money for a specific deal and plan to pay the money back quickly.
3. Private Money
Private money — getting loans from individuals who trust you and know you — is one of the best ways to fund real estate deals.
You have more control over the loan and you get to work with someone you trust.
4. Traditional Loans
Banks are always an option, but the process can be slow and they typically require more documentation.
Final Thoughts on Hard Money Loans
As you can see, there are a lot of places to find hard money lenders.
If you're new to real estate investing, it might be a good idea to start with your local REIA meeting or BiggerPockets and work your way up.
Hard money loans can be a great option for real estate investors, but make sure you do your research first to find the right lender for you.
Oh — and if you want to learn more about how we can help you grow your real estate investing business here at REISift, click the link below.