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How Much Does a Hard Money Loan Actually Cost?

October 4, 2021 by in Hard Money Lenders, Hard Money Loan, Real Estate Investment

Hard money loans are a boon to those who cannot get through the traditional loan methods. It is one of the safest and secure options for procuring quick money in case the borrower is denied a loan by the banks.

But one question that is forever in the borrowers’ minds is: how much do hard money construction loans cost actually? What is the process to get them? Is there anything else a borrower should know before securing one?

To answer these questions, we need to first understand what hard money construction loans really are.

What does Hard Money Commercial Construction Loan mean?

Hard money lenders in Colorado provide loans based on ‘hard’ assets, that are mostly properties or real estate, for a short-term (6-12 months). In certain cases, this duration can be extended, depending upon the lender.

Here, the loan amount is calculated by the ‘as is value’ of one’s property or the ARV (after repair value) of the property. A loan based on ARV includes the repair costs of the property along with its purchase price.

One can borrow up to 80% of the ARV hard money Denver value.

What are the Actual Costs Associated with Hard Money Loans?

There are not just interest costs that should matter when it comes to talking it out with hard money loan lenders Denver. Certain other factors that one must keep in mind while applying for hard money commercial construction loans are:

Appraisal Fee: The appraisal fee is one that the borrower pays for an appraisal by a licensed hard money lender in Colorado.
Referral Fee: If you were referred to a hard money lender in Denver by a broker, there might be an additional sum of fee involved.
Interest Rate: In comparison to the traditional loans, the interest rate on hard money construction loans may be higher since the loan term is much shorter.

Therefore, it is wise to consider the actual amount that will be paid out during the term of the loan instead of the APR.

The average percentage of APR is around 10-15%, depending on the borrower’s qualifications, property, and the lender himself.

Pre-Payment Penalties: Some of the hard money lenders charge a pre-payment penalty. Make sure you ask or read the fine print before signing up for a hard money construction loan.

Why Choose Hard Money Loans?

You might be confused if choosing to go for hard money commercial construction loans is in fact a wise choice, considering the factors mentioned above.

But there are certain pros to it as well, like:

• It helps in getting the money you need quickly. There’s less paperwork and faster approvals.
• Properties that need renovation can also be considered for hard money construction loans, which might not be possible with any of the traditional loans.
• Land and construction loans are also a part of hard money loans.
• No large down payments are required. You can save the money for later or choose to keep a good amount to yourself for future/emergency purposes.

Since it is a short-term loan, borrowers have the option of quick rehab and sell the estate to repay the loan. Alternatively, you can always transition from a hard money loan in Colorado to a traditional loan when you are ready.

Speak to your nearest lending company to get a free quote and more useful details today.

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