Are you a real estate investor looking for quick financing options? Hard money loans might be the solution you need. In this guide, we’ll explore what hard money loans are, how they work, and the best lenders in 2024.
Quick Answer: Best Hard Money Lenders for 2024
- Backflip: Known for fast funding and virtual draws
- Kiavi: Offers an easy approval process and competitive rates
- AMZA Capital: Specializes in large loans for high-volume investors
- RCN Capital: Provides experience-based rates for repeat investors
- Express Capital Financing: Offers diverse loan products for various investment strategies
We’ll also discuss the pros and cons, requirements, and alternatives to help you make an informed decision.
What Are Hard Money Loans?
Hard money loans are short-term lending instruments that real estate investors use primarily to finance investment projects.
These loans are secured by the property itself and are issued by private lenders rather than conventional institutions such as banks.
Key Characteristics of Hard Money Loans:
- Typically used for real estate investments or property flipping
- Short-term financing, usually 12-24 months
- Faster funding compared to traditional loans
- Property value is prioritized over borrower’s creditworthiness
- Higher interest rates and fees compared to conventional loans
Comparing Top Hard Money Lenders
To help you make an informed decision, we’ve compiled a comparison table of the top hard money lenders for 2024.
This table highlights key features and terms offered by each lender, allowing you to quickly compare your options.
| Lender | Loan Amounts | Interest Rates | Loan Terms | Funding Speed | Best For |
|---|---|---|---|---|---|
| Backflip | $50K – $5M | 8% – 12% | 6 – 24 months | As fast as 48 hours | Fast funding and virtual draws |
| Kiavi | $100K – $15M | 7.5% – 13% | 12 – 36 months | 5 – 10 business days | Easy approval and competitive rates |
| AMZA Capital | $250K – $50M+ | 9% – 15% | 6 – 36 months | 7 – 14 business days | Large loans and high-volume investors |
| RCN Capital | $50K – $2.5M | 7.99% – 12% | 12 – 24 months | 10 – 21 business days | Experienced investors with lower rates for repeat borrowers |
| Express Capital Financing | $75K – $5M | 8.99% – 14% | 3 – 36 months | 5 – 7 business days | Diverse loan products for various investment strategies |
Note:
The rates and terms presented in this table are approximate and may vary based on factors such as property location, loan-to-value ratio, borrower experience, and current market conditions.
Always contact lenders directly for the most up-to-date and accurate information tailored to your specific situation.
Key Takeaways from the Comparison
Looking at the comparison table, we can draw several insights:
- Loan Amounts: AMZA Capital stands out for large-scale investors with its high maximum loan amount, while others cater to a range of investment sizes.
- Interest Rates: Rates are generally competitive across all lenders, with Kiavi and RCN Capital offering some of the lower starting rates.
- Loan Terms: Express Capital Financing offers the most flexibility with terms as short as 3 months, while Kiavi extends up to 36 months for longer-term projects.
- Funding Speed: Backflip leads in rapid funding, potentially closing deals in as little as 48 hours.
- Specializations: Each lender has its strengths, from Backflip’s fast funding to AMZA Capital’s focus on large-scale investments.
Requirements for Hard Money Loans
While requirements can vary between lenders, here are some common factors they consider:
Detailed property information and project plans
Property appraisal
Experience in property flipping (for some lenders)
Proof of income or liquid assets
Credit check (though specific score requirements vary)
Business entity (LLC) and business bank account (for some lenders)
Typical Hard Money Loan Requirements
It’s important to note that hard money lenders focus more on the value of the property serving as collateral rather than your personal financial history.
How to Qualify for a Hard Money Loan
While hard money lenders are generally more flexible than traditional banks, there are still steps you can take to improve your chances of qualifying for a loan and securing better terms.
Steps to Qualify for a Hard Money Loan
Follow these steps to increase your chances of qualifying for a hard money loan:
Prepare a Solid Business Plan
Outline your investment strategy, including purchase price, renovation costs, timeline, and projected sale price or rental income.
Build Your Real Estate Network
Connect with other investors, join local real estate groups, and attend industry events. A strong network can lead to better loan opportunities.
Gather Your Documentation
Collect necessary documents such as proof of income, bank statements, and any previous real estate experience or successes.
Improve Your Property Analysis Skills
Develop the ability to accurately assess property values and renovation costs. This will make your loan application more credible.
Have Some Skin in the Game
Be prepared to make a significant down payment. Most hard money lenders require 25-30% down.
Work on Your Credit Score
While not as crucial as with traditional loans, a better credit score can still lead to more favorable loan terms.
Understand Lender Requirements
Each lender has different criteria. Research and understand these before applying to increase your chances of approval.
Pro Tip:
Consider starting with smaller projects and building a track record of successful investments. As you gain experience and prove your ability to execute profitable deals, you’ll become more attractive to hard money lenders and may qualify for better terms.
By following these steps and continuously educating yourself about real estate investing and hard money lending, you’ll be well-positioned to qualify for the funding you need to pursue your investment goals.
Fees and Costs Associated with Hard Money Loans
Hard money loans typically come with higher costs than traditional financing. Here’s what you can expect:
Origination fees (percentage of the loan amount)
Closing costs (including insurance, title, and appraisal fees)
Higher interest rates (typically 7-15% annually)
Underwriting fees
Possible prepayment penalties (though many lenders are moving away from these)
Common Hard Money Loan Fees
Important Note:
Be cautious of lenders charging early payment penalties, as hard money loans are designed for quick repayment. Always read the fine print and understand all associated costs before committing to a loan.
How to save $619.00 on your loan
The price difference for a $500.00 loan in 90 days is $619.00.
Pros and Cons of Hard Money Loans
Before deciding if a hard money loan is right for you, consider these advantages and disadvantages:
Fast access to funding (often within 10 days)
Flexible loan terms
Less emphasis on credit score
Ideal for short-term investment strategies
Pros of Hard Money Loans
Higher interest rates and fees
Shorter repayment periods
Risk of losing collateral if you default
Some owner-occupied residences may not qualify
Cons of Hard Money Loans
How to Choose the Best Hard Money Lender
When selecting a hard money lender, consider the following factors:
- Loan amount and terms
- Interest rates
- Down payment requirements
- Prepayment penalties
- Time to closing
- Loan-to-value (LTV) and after-repair value (ARV) percentages
- The lender’s reputation and experience in your market
Always compare multiple lenders to find the best terms for your specific investment strategy.
Alternatives to Hard Money Loans
While hard money loans can be an excellent solution for many real estate investors, they’re not always the best fit for every situation. Let’s explore some alternatives that might better suit your needs or offer more favorable terms:
1. Commercial Real Estate (CRE) Loans
CRE loans are designed specifically for income-producing properties and can be an excellent alternative for larger investment projects.
Lower interest rates compared to hard money loans
Longer repayment terms (often 5-20 years)
Higher loan amounts available for large projects
Pros of CRE Loans:
Stricter qualification requirements
Longer approval process
Typically require established cash flow from the property
Cons of CRE Loans:
2. Investment Property Financing
This type of financing is tailored for purchasing properties intended for generating rental income or for resale after appreciation.
Lower interest rates than hard money loans
Longer repayment terms
Potential for lower down payments
Pros of Investment Property Financing:
More stringent credit score requirements
May require proof of rental income or property management experience
Can be challenging to qualify for multiple properties
Cons of Investment Property Financing:
3. Business Line of Credit
A business line of credit provides flexible financing that can be used for various purposes, including real estate investments.
Flexible use of funds
Pay interest only on the amount you use
Revolving credit – as you repay, you can reuse the funds
Pros of Business Line of Credit:
May have lower credit limits than other loan types
Often requires good personal and business credit scores
May require collateral for larger amounts
Cons of Business Line of Credit:
4. Home Equity Loans or HELOCs
If you have significant equity in your primary residence, you might consider using it to fund your investment property purchases.
Lower interest rates compared to hard money loans
Potential tax benefits (consult a tax professional)
Flexible use of funds
Pros of Home Equity Financing:
Risk of losing your home if you default
May take longer to secure than hard money loans
Requires significant equity in your primary residence
Cons of Home Equity Financing:
5. Private Money Lenders
Private money lenders are individuals or small groups that lend their own funds, similar to hard money lenders but often with more flexible terms.
Highly flexible terms and conditions
Potential for lower interest rates than hard money loans
Faster approval process
Pros of Private Money Lenders:
Can be challenging to find reliable lenders
May require strong personal relationships or networking
Less regulated, which can increase risk
Cons of Private Money Lenders:
By exploring these alternatives, you can find the financing solution that best fits your investment goals, risk tolerance, and financial situation.
Remember, the ideal funding source may vary depending on the specific property, your experience level, and current market conditions.
Frequently Asked Questions
FAQs About Hard Money Loans
What is the typical interest rate for a hard money loan?
Hard money loan interest rates typically range from 7% to 15% annually, depending on the lender and the perceived risk of the loan.
How quickly can I get approved for a hard money loan?
Many hard money lenders can approve and fund loans within 5-10 business days, significantly faster than traditional bank loans.
Do I need perfect credit to get a hard money loan?
No, hard money lenders focus more on the value of the property serving as collateral rather than your credit score. However, a higher credit score may help you secure better terms.
What is the typical loan-to-value (LTV) ratio for hard money loans?
Hard money lenders typically offer LTV ratios between 65% to 75%, meaning you’ll likely need to put down 25% to 35% of the property’s value.
Remember, while hard money loans can provide quick access to capital, they’re not suitable for every situation. Always consult with a financial advisor or real estate professional before making significant investment decisions.
