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What is a Hard Money Loan?

    Hard Money Made Easy

    Successful flippers and rehab-to-rental landlords have a secret. 

    It helps them scale their business, create greater cash flow, and leave their cash reserves untouched. What is it? 

    It’s hard money! Read on to see why it’s the perfect strategy for real estate investors.

    What is hard money? 

    Hard money loans are short-term business-purpose loans designed for rehabbers doing fix-and-flips and landlords using the BRRRR method (buy-rehab-refinance-rent-repeat). 

    Hard money loans are not intended for home owners or owner-occupied houses.

    Where can I get a hard money loan? 

    Banks?  No. Short-term loans are not their thing. 

    Banks prefer longer term loans, which are perfect for the refi step in the BRRRR method. 

    Private lenders?  Maybe.  

    It takes time to find them and build a trust relationship with them. 

    Often it’s hard to scale–do multiple projects at once–with private funds because they are usually limited to $10,000 – $20,000 to start. 

    They may not have large amounts of money to lend.

    Hard Money Lender (HML)?  Yes! 

    FasterFunds Lending is the easy button. Super-quick!

    We can get you the whole amount you need, including rehab funds, usually with nothing down. 

    We’re the experts in this space. Short-term loans are what we do!

    How does Hard Money Lending interest rates compare to banks?

    Banks:  Cheapest money. They borrow at low rates directly from the Fed. 

    Banks offer low interest rates for long-term loans, with up to 20% down. 

    Great for your refi after the rehab, though! 

    Private money:  Sometimes cheaper than hard money, but limited in availability.

    Hard money:  Costs more because the lender’s cost is higher. They don’t have the same access as banks to cheap money through the Fed.

    Since HMLs take more of a risk than banks can, hard money lenders must charge more. 

    However, if you’re buying right, you may have no money down. 

    You pay off quickly (6 months on average) so the total cost is not high, and it’s made up in the sale.

    What are the benefits of working with a HML like FasterFunds Lending?

    Easy!  Less paperwork, fewer hurdles to jump.

    Super-fast!  Pre-approval moves as quickly as the borrower can get us their paperwork in good order. From walk-through to funding, another 2-5 days. Far faster than a standard bank loan!

    Focused!  This is all we do. We are experts on flips and BRRRR deals.

    Repeatable!  Experienced rehabbers and landlords can easily scale their business, taking on serial or multiple, simultaneous projects funded by our loans.

    Are all hard money lenders the same?  

    Not at all. Since there are few regulations on hard money, it’s important to compare location, rates, and qualification requirements.

    Location:  

    Hard money lenders are nationwide, regional, or local.

    Local is the way to go! A local lender is more knowledgeable of the local markets, more experienced in the area. 

    The team is usually local as well, so it will be faster, more hands on, and more flexible with extensions, special circumstances, permit delays, etc.  

    Qualification Requirements:  

    Some base qualification for the loan solely on the property and what may be the risk of having to take it back. 

    Others consider both the property and the applicant, focusing more on whether the borrower is likely to succeed with that property.

    This sets up a win-win, and reduces the number of properties taken back. 

    Once a borrower is qualified, lenders have typical ways of determining how much can be borrowed, based on minimum credit score, cash reserves on hand, etc.

    Interest Rates and Terms:  

    Interest rates and terms can vary greatly.  Be sure to ask for the specifics of their rates and terms. 

    Although six months is a typical term, some HMLs have a firm cutoff after six months, with risk of foreclosure.

    At FasterFunds Lending, our rate is currently 12% +3 for a six-month loan. 

    Because we’re local, we are more flexible on extensions and special circumstances.

    Fees:  

    No one asks about fees–always ask about fees

    Some have a large appraisal fee, an admin fee, in addition to the origination fee–sometimes up to $8000 in fees before you even purchase the property.

    At FasterFunds Lending, the origination fee of 3% is paid at the end of the loan. This gives you more money up front for your project, and you pay it out of your profits or refi at the end.

    Choose Faster Funds Lending in the STL area!

    Whether you want to borrow to flip properties or to refi and keep them as rentals, choose FasterFunds Lending as your go-to hard money lender in the greater St. Louis area. 

    Many of the employees are investors themselves, and they offer their expertise to help you make good decisions about your project. 

    Contact us and get started today!

    Lisa Hawkins
    Author: Lisa Hawkins