Hard Money Loans are short-term loans that are typically secured by real estate. They can be used by investors to fix and flip property purchases (purchase and renovation of properties). Typically, an investor will purchase, renovate, and sell a property in less than a year. Hard Money Loans for flipping houses are excellent options for fix and flip projects since they enable the financing of properties that are in less than ideal condition.
What Is a Hard Money Lender?
Hard Money Lenders are individuals or private companies who lend money to investors with real estate as the primary collateral. Since, unlike banks, they are not regulated, property and borrower qualifications are more relaxed. Fix and flip investors find Hard Money Loans work well for the financing, renovation, and sale of a property. They can also be used for refinancing.
How Hard Money Loans for Flipping Houses Work
Hard Money Loans are sometimes called rehab loans. The qualifications for attaining them are lower and more flexible than traditional loans. The property and the potential profit it can turn are more relevant to lenders than a borrower’s background. Approval is generally quick. Hard money loan mortgages are intended to be short-term and interest-only.
Hard Money Loan Rates, Terms & Qualifications
Hard Money Loans differ greatly from traditional mortgages in a few key ways:
- The qualifications are more lenient
- Interest rates are higher
- Loan times are shorter
- Funding times are shorter
They can be used to finance distressed properties, single-family homes, apartment buildings, condominiums, etc. Loans are made based on a property’s loan to value ratio/after repair value ratio or loan to cost. After repair value is the expected fair market value of a property, originally underpriced after it has been renovated.
Fix and Flip Hard Money Loans are typically up to 75 percent of a property’s anticipated after repair value. At Fidelity Funding, we can offer 65 – 90% LTV or 75% of ARV up to 90% Acquisition + 100% Rehab. As with traditional bank loans, investors should expect to cover closing costs, application fees, appraisal fees, and other associated expenses that come with the purchase of a property.
Flip Investors
Most fix and flip investors aim to renovate and sell properties within three months to a year of acquisition. There is an expectation from the lender the property will be flipped, and the loan will be honored within a year when the property sells. Although the rates on Hard Money Loans for flipping houses are higher, funding is fast enough for investors to compete with cash buyers.
Fix and flip investors prefer Hard Money Loans because they both finance the purchase and renovation of investment homes. Such investors target houses in poor condition that, when renovated, will potentially sell for more than their market value. Short-sales, foreclosure auctions, and lender-owned REO properties are commonly financed as flip and flip projects.
Hard Money Loans for flip and fix projects are generally equal to a percentage of the property’s expected fair market value after renovations have been made. Once a property is purchased, investors begin renovations, taking money for repairs in the form of stipends or “draws” arranged as a line of credit by the lender. The need to float rehab costs between stipends is common.
Long-Term Investors
Long-term investors look to finance and renovate properties as well. Where they differ from fix and flip investors is they aim to season properties before moving to refinance to a permanent mortgage. For long-term investors, the principal debt is paid when new long term financing is obtained.
Long-term investors typically purchase properties in poor condition. They aim to renovate the property and then rent it to tenants. Long-term investors who seek Hard Money Loans often cannot qualify for a conventional loan. Typical underwriting may present problems for borrowers who are considered credit risks because of judgments, tax liens, or other issues.
Why Hard Money Loans Are Appealing to Investors
Hard Money Loans for flipping houses are popular with investors. They often prefer to attain a short term loan with quick pre-qualifications, and rapid funding timeframes and interest-only payments. The potential of quick turnover makes the expense of the loan a palatable trade-off.
Investors focused on attaining Hard Money Loans like they can finance the purchase of single-family or multi-unit properties. The ability to be competitive in a fast-paced sales market is essential. The rapid approval and funding time of Hard Money Loans makes them ideal for purchasing short-sales, REOs, and foreclosure properties.
No matter the timeline an investor has, Hard Money Loans are used for the same purpose, property purchase, and renovation. During the loan period, monthly payments are generally interest-only. Prepayment penalties are rarely a factor, so the loans can be paid off early if desired.
The Bottom Line of Hard Money Loans
At the end of the day, Hard Money Loans for flipping houses are a useful tool for short-term fix and flip investors. The ability for Hard Money Lenders to offer shorter processing times for approval and interest-only payments to those wishing to purchase and renovate investment properties is highly beneficial to borrowers.
At Fidelity Funding, we are able to offer rates that are competitive to prime buyers. Investors can be pre-qualified within just minutes, and we can have you funded within five to seven days. Our criteria for investors is straight forward and hassle-free:
- No minimum credit score
- No income or credit verification
- No Tax returns required
- Two to three months’ worth of banking statements
- The location and purchase price of the investment property
- Contractor bids and rehab scope
- No mortgage insurance
Fidelity Funding specializes in providing loans to almost every type of property, both residential and commercial. We are able to fund first, second, or third trust deeds and the provision of home equity lines of credit. If you are a new or seasoned flip and fix investor who needs a reliable lender for Hard Money Loans for flipping houses, contact us today to discuss your loan needs!
We look forward to partnering with you on your next investment project.
