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Best Hard Money Lenders

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By: Scam Risk - Expert Reviewer

Hard Money Lenders 2021: Can You Trust Them?

Real estate investors frequently use hard money loans, also known as “bridge loans.” Private individuals or businesses, rather than banks, are the most common hard money lenders.

The property is used as collateral in this type of asset-based loan. This type of funding is generally faster and easier for borrowers than other financing options. Still, it can be more expensive in terms of interest and fees.

Are you looking for a hard money lender? If yes, then here’s a review of it.

You’ll learn whether hard money loans are the right for you.

Towards the end of this article, you’ll find answers to some of the most frequently asked questions about hard money lenders and other online alternatives.

But most importantly, you’ll be shown a system that several others have used to build their own business to over $40,000 a month in mostly passive income.

This system made them swear off hard money loans for good because it uses some of the same skills but in a much more powerful and profitable way!

Table of Contents

The Best Hard Money Lenders

Finding the right lender may be difficult if you’ve decided that hard money financing is a good fit for your current situation. Here are some of the options we believe are suitable for companies that provide national service. Another type of smaller lender, such as North Coast Financial in California, specializes in providing services to regional investors only, so you should look into your options in your region.

Most Customer-Focused Hard Money Lender

In 44 states, RCN Capital offers “fix and flip” financing. The lender finances residential and mixed-use property projects, such as single-family homes and multi-unit dwellings. RCN only charges interest on the outstanding balance of your loan, not on the total loan amount. You can save money if you sell your investment property quickly and repay the loan because there are no early repayment penalties on this company’s loans.

The Best Hard Money Lender for Experienced Flippers

Finance of America offers highly competitive interest rates on residential and commercial real estate. Furthermore, it will provide proven investors with a line of credit of up to $10 million, allowing them to work on large projects or multiple properties at the same time rather than using other options such as a cash-out refinance or business loan.

Finance of America looks at your track record with real estate investing rather than your personal credit history, so this may not be the best option for you if you’re a new investor.

Best Hard Money Lender for Rental Properties

Visio Lending offers a variety of long-term loan options and bridge loans, all of which are tailored to the needs of landlords. Borrowers who want to buy vacation homes or multi-unit properties can take advantage of these low-interest loans. Because the company does not qualify borrowers based on personal income or credit score, having less-than-perfect credit is not an impediment to starting a real estate investing business.

Alternatives to Hard Money Lender

If you are pretty lucky to have family or friends who have a little extra cash, they could be an ideal lending partner. Loans from friends and family continue to be a popular way for many large and small businesses to obtain borrowed capital. You could approach your personal contacts and offer them a higher interest rate than they currently earn in a savings account.

This is a win-win situation because there is a significant difference in interest rates between a savings account and the rates demanded by seasoned hard money lenders. Furthermore, friends and family are unlikely to charge any fees. They may be a little more lenient if an emergency arises and you need to make a late mortgage payment or request additional funding.

However, adding a potential source of tension to their personal relationship may not be worth it for some people. However, a close relative or friend can serve as a suitable lender for others.

Real estate crowdfunding is another option to consider. Patch of Land is a website that connects borrowers and lenders in the real estate crowdfunding industry. Interest rates are low, and the application to the funding process is swift. In addition, Patch of Land has a dedicated customer service team that assists applicants and responds quickly to their concerns and questions.

Who is the Best Hard Money Lender?

There are several important qualities to consider when determining which lending partner is a good fit for you.

Reputation

Inquiring about any lender is one of the best ways to obtain real-world feedback. You can find reviews and rankings by conducting a simple online search. You can share your experiences with private money lenders by joining a local chapter of the National Real Estate Investor Association. Other real estate investor forum sites, such as BiggerPockets, provide a virtual setting for networking and exchanging ideas with like-minded investors. Real estate agents, title organizations, and mortgage lenders in your area may be able to refer you to a reliable hard money lender because they deal with them frequently.

When necessary, check with your lender to see if they have any licensing. The best hard money mortgage loan companies will be registered with national organizations, which can be found through the Nationwide Multistate Licensing System & Registry. Individual lenders may be licensed by their state’s real estate commission or hold a real estate broker’s license. You can check complaints and confirm membership by contacting licensing boards.

Speed and Simplicity

The primary advantage of this type of real estate loan is that it is quick. Borrowers do not have to worry about the lengthy application and underwriting processes associated with traditional mortgage loans. Short-term loans with immediate funding and a simple application process are ideal for real estate investors such as house flippers.

Because they only plan to keep the investment property for a short time, these borrowers cannot afford to wait for a conventional loan to be approved. Hard money financing allows for a faster turnaround because there is less red tape and less scrutiny of the borrower’s finances, such as their debt-to-income ratio and FICO score. Because the property serves as collateral on loan, the creditor bears less risk. These loans can be secured in a matter of days.

If your lender requires you to jump through hoops or wait an extended period of time to access loan funding, it is most likely not the best option. By definition, a hard money mortgage is brief and to the point. The best hard loan lenders will not complicate the process or keep you waiting for your funds.

Affordability

Because of the increased risk, hard money lending can be a more expensive mortgage option. When it comes to the overall cost of the loan, there can be a lot of variation. It’s critical to compare interest rates and make sure you understand the structure of your loan and any fees involved.

The interest rates on hard money loans typically range from 8% to 15%. Traditional loans interest rates, such as a mortgage, range between 3 and 6 percent. Because hard money lending is considered riskier, lenders charge a higher interest rate to hedge their bets. Rates will differ depending on the creditor and the buyer’s individual circumstances. Interest rates vary regionally as well, depending on the local competition.

Many hard money loans have origination points in addition to interest rates. Origination points are a type of fee that borrowers must pay to cover the costs of loan processing, closing costs, and other expenses incurred by the lender. One point is typically equal to one percent of the loan amount. On a hard money loan, some lenders may charge up to ten points. It’s critical to understand whether your lender charges an origination fee so you can determine if the cost fits within your budget and plan accordingly.

The loan-to-value ratio determines the majority of the costs associated with a hard money loan (LTV). You can figure this out by taking the loan amount and dividing it by the house’s value. In general, a higher ratio indicates a greater risk to lenders. As the lender’s risk rises, so do the fees and interest rate that accompany it.

The loan-to-value ratio is calculated by some traditional lenders using the property’s current appraisal as a base. In contrast, others use the after-repair value (ARV). The use of the ARV raises the loan-to-value ratio, indicating a riskier loan with higher costs. Inquire whether your lender uses the current property value or the ARV.

Before signing a hard money loan contract, keep an eye out for predatory practices, excessive costs, and lender fees. If you’re worried you’ll be in over your head financially and unable to repay the loan, don’t agree to work with the lender.

underwriting processes associated with traditional mortgage loans. Short-term loans with immediate funding and a simple application process are ideal for real estate investors such as house flippers.

Because they only plan to keep the investment property for a short time, these borrowers cannot afford to wait for a conventional loan to be approved. Hard money financing allows for a faster turnaround because there is less red tape and less scrutiny of the borrower’s finances, such as their debt-to-income ratio and FICO score. Because the property serves as collateral on loan, the creditor bears less risk. These loans can be secured in a matter of days.

If your lender requires you to jump through hoops or wait an extended period of time to access loan funding, it is most likely not the best option. By definition, a hard money mortgage is brief and to the point. The best hard loan lenders will not complicate the process or keep you waiting for your funds.

Renovation Costs

Whether a single-family house or a multifamily building, rehabbing an investment property is almost always part of a real estate investor’s project.

The amount of your loan may have to cover the purchase price of the property as well as the costs of renovation or new construction, depending on your personal situation. While increasing the loan amount raises the risk level and may cost you more in fees and interest, it may still be necessary to complete your project successfully.

Many hard loan lenders distribute funds in a series of draws to ensure that the portion of your loan designated for rehabilitation is used responsibly. Good lenders will sit down with you after your hard money loan is approved to create a draw schedule that considers the repairs you need to make to the property. When the work for one draw is finished, you will be reimbursed and can start working on the next draw.

For example, suppose a new roof is required. In that case, once it is completed and the lender has inspected and confirmed that it has been completed satisfactorily, the lender will reimburse you for that work. You can move on to the next project, perhaps updated plumbing.

Most hard money lenders will only fund rehab work performed by reputable licensed contractors. DIY house flippers may be out of luck when it comes to hard money loans because they cannot use the money to fund renovations.

Hard money or bridge loans have numerous advantages and disadvantages for real estate investments. Before entering into a transaction, thoroughly vet your lender and read the fine print on any contracts. Investors and best hard money lenders alike can benefit significantly from these loans even though they carry some risk.

FAQs

Let us now address your concerns about hard money loans.

What is Hard Money Loans?

A hard money loan, alternatively referred to as hard money, is short-term commercial financing secured by the purchased or renovated property. Private lenders or traditional lenders make hard money loans.

How Does Hard Money Loan Work?

Hard money loans are a kind of loan in which the collateral is a property that is being purchased. Because traditional lenders are concerned with your credit score, financial history, and overall ability to repay them, the lending application and the approval process can be lengthy and time-consuming.

This does not apply to a hard money loan, on the other hand. Borrowers can get money quickly because hard money lenders are less concerned with your personal finances and credit scores and more concerned with the property’s value. Lenders will seize and sell the collateral if a borrower defaults on the loan.

Hard money loans are quick to get approved for and funded. It’s possible to get a loan for a short period of time or for a long time. The high interest rates associated with hard money loans, on the other hand, make holding one for that long a wrong financial decision.

Cash is scarce. Hard money Borrowers make monthly payments that include interest and any fees. Loan partners may occasionally reimburse borrowers for specific property rehabilitation projects if that is part of the agreement.

Upon sale of the property, the borrower is responsible for repaying the lender for the remaining balance, covering the closing costs, and keeping any profits.

Is it necessary to make a down payment on a hard money loan?

Some hard money lenders do require a down payment, but not all. Most house flippers and other real estate investors require a 20-30% down payment to mortgage, a property with hard money financing.

Borrowers can use a hard money loan to finance the entire cost of a property in some cases. Affluent individuals with excellent personal credit scores and an established record of success in real estate investing are typically the only ones who qualify for such financing.

Some predatory lenders advertise hard money loans with no down payment, so do your homework before signing an agreement with a company that makes such claims. Unfortunately, if something appears to be too good to be true, it most likely is. Excessive fees, balloon payment terms, unrealistic payment schedules, or other deceptive practices may be involved.

How Much Do Hard Money Lenders Charge?

Loans from hard money lenders are subject to monthly interest charges. Hard money loan rates can range between 8% and 15% of the total loan amount. The borrower must make monthly interest payments until the investment property is sold and the loan is paid in full. As a result, the number of months you’ll need to pay interest is determined by the time it takes to complete any renovations, lists the property, and close a sale. As a result, it is in the borrower’s best interest to complete these tasks as soon as possible.

In addition, hard money lenders typically charge an origination fee, ranging between 1 and 10% of the loan amount. The administrative costs of the loan are covered by this fee.

A down payment on a property is often required by hard money lenders. An average of 20% to 30% of the total cost is devoted to this. Putting this money down upfront reduces the lender’s risk. It may allow for lower interest rates and better terms for the duration of the loan.

Do Banks Offer Hard Money Loans?

No. Hard money lending is not provided by traditional financial institutions such as banks and credit unions. Private lenders and private investors make hard money loans.

When Would a Hard Money Loan Be Beneficial?

Other options are available even if your credit scores aren’t high enough or your business experience isn’t long enough to qualify you for a traditional commercial real estate loan. A hard money loan may be a good option if you plan to renovate and resell the property quickly.

There are other small business loans available if a hard money loan isn’t the best option. In addition, Nav offers a free evaluation of your company’s credit scores before you apply for financing.

The Bottom Line: Hard Money Loans

Hard money loans can be a good tool for real estate investors to acquire properties in certain situations. When available, traditional financing should be used instead. If you decide to use hard money to finance a transaction, make sure you can afford the interest and fees, as well as repay the loan when it’s due. If you believe a hard money loan is right for you, research the companies on our list of the best hard money lenders.

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