Commonly Asked Questions About Hard Money Loans
What is the difference between a hard money loan and a conventional loan?
The value of the property (a “hard” asset) to be restored is primarily the basis of hard money loans, hence the name “hard loan”. Conventional loans are given based on the borrower’s income, credit, and other assets.
Is there a cash-down payment?
In most situations, as part of the lending arrangement, you will need to have a cash down payment. The size of your down payment is based on your experience with fix-and-flip properties and your intended property for renovation. The threshold for a down payment normally varies from 15 to 20 percent.
What are the usual interest rates for a hard money loan?
The interest rate for this loans varies per the lender and the state of the market. Interest rates vary from 8 percent-18 percent based on the perceived loan liability of the lender and the property’s location.
What is the loan-to-value ratio?
The amount of hard money that lenders can give for a single home is called the Loan-to-Value ratio, or LTV. The LTV is based on the ratio of loan amount divided by the property’s value. Many hard money lenders usually lend up to 65 percent to 75 percent of the current value of the house.
What are the typical loan terms?
Hard money loans are short-term loans varying from 6 months to 18 months. Long-term loans can also be within the 3 + year spectrum. Investors use them for the straightforward turnaround process and the opportunity to buy, renovate, and sell a home in a few months.
How long does it take to receive funding from a hard money lender?
Hard money loans are easy to receive. The application process typically requires a few days, and the loan is approved afterwards. A hard-money lender usually moves the funds within a week of approval. Pinetree Financial can close out loans within 24 hours or less in some cases.
Is my credit rating important?
During the loan approval process, your credit rating may be noted although it is not as relevant compared to a conventional loan. Hard money lenders run credit checks but to see if the borrower can repay the loan.
Are there any lender costs?
Costs include origination fees (typically 1-3 points), loan fees, and evaluation fees. Costs for third parties may include the payments for title and escrow.
Do you have more questions about using hard money? Our Pinetree Financial Group team can answer your concerns regarding Colorado commercial real estate investment, fix-and-flip loans, and how you can get started. Call us today to learn more.