Let Real Estate Skills guide you through discovering the top hard money lenders for beginners—trustworthy and reliable sources that can provide the financial backing you need to kickstart your real estate ventures. That said, this article will explore the most important aspects of hard money loans for beginners, including:
For new investors breaking into the real estate sector, finding the necessary capital to fund an impending deal can feel like navigating a sea of uncertainty. The lack of experience often leads to skepticism from traditional lenders, making securing financing a daunting task. However, theres a silver lining: hard money lenders that cater specifically to beginners. Contrary to popular belief, hard money is more attainable than it might seem for new investors.
In reality, some hard money lenders recognize the potential of first-time investors and are willing to extend a helping hand. Hard money can be accessible, provided investors know where to look. The good news is that the path to funding is easy to see; it simply requires knowing the right sources to tap into.
Flipping houses is an exciting way to make money in real estate But as a first time flipper, funding your first project can be tricky Getting a hard money loan is a great option, but many lenders shy away from new investors.
In this complete guide I’ll explain everything first-timers need to know about hard money loans. I’ll cover
- What is hard money and how it works
- Benefits and drawbacks of hard money loans
- What lenders look for in first-time flippers
- 7 best hard money lenders for beginners
- Alternative loan options
- FAQs on hard money for newbies
Let’s dive in!
What Are Hard Money Loans?
Hard money loans are short-term, asset-based loans provided by private investors rather than banks. The “hard money” refers to the property itself – it acts as collateral for the loan.
Unlike traditional mortgages, hard money lenders focus on the property’s potential value rather than the borrower’s credit score or income. This makes them ideal for real estate investors doing renovations and flips.
These loans come with higher interest rates and shorter repayment terms than conventional mortgages. Rates typically range from 7% to 15%. Terms are usually 6 to 36 months.
The quick access to capital makes hard money perfect for time-sensitive deals. But higher rates mean they’re best used for short-term projects.
How Do Hard Money Loans Work?
Here’s a quick rundown of the hard money lending process:
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Find a property: The borrower identifies an investment property to purchase and flip. This is often a distressed property bought at a discount.
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Apply for funding: The borrower applies with a hard money lender. The lender evaluates the deal based on expected property value.
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Lender provides the loan: Approved borrowers receive funding quickly, often in a week or less. The property acts as collateral for the loan.
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Borrower flips the property: They renovate and resell the home for a profit. A portion goes towards repaying the loan.
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Loan is paid off: The borrower repays the loan plus interest after selling the flipped home. Many refinance into longer-term financing.
Hard money loans are ideal for flipping because lenders can fund deals very quickly. But they come at a price with higher rates and strict repayment terms.
Pros and Cons of Hard Money Loans
Let’s look at some of the top advantages and drawbacks of using hard money financing:
Pros
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Speed: Hard money lenders can fund deals in as little as 1 week, while banks take at least 1 month. This allows investors to jump on time-sensitive opportunities.
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Fewer requirements: Hard money lenders focus more on the property rather than borrower qualifications. First-timers may find it easier to qualify.
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Flexibility: Hard money loans allow investors flexibility in deal types, property conditions, and exit strategies. Lenders work with distressed properties.
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Lower down payments: Many hard money lenders only require 10%-20% down, compared to 20%+ for conventional mortgages. This reduces upfront costs.
Cons
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Higher interest rates: Hard money loans typically have interest rates from 7% to 15%, compared to around 5% for conventional mortgages. This increases financing costs.
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Shorter terms: Hard money loans usually have 6- to 36-month terms. Borrowers must sell or refinance within this timeframe or face default.
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Costs add up: Origination fees, closing costs, and other charges can amount to significant upfront costs beyond just the interest rate.
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Risk of default: If the flip doesn’t go as planned, first-timers risk losing their hard-earned investment capital.
As you can see, hard money loans allow quick access to funds but come with higher costs and risks. The advantages tend to outweigh drawbacks for experienced investors doing short-term projects.
What Do Hard Money Lenders Look For in First-Timers?
Many hard money lenders shy away from working with first-time flippers. But some understand every pro was once a beginner. These lenders often look for a few key things in new investors:
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Related experience: Education or work experience in areas like construction, real estate, or house flipping. Proves basic competence.
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Skin in the game: Sizeable down payment shows commitment to the deal. Usually 10-25% of purchase price.
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Strong credit score: Score of 600+ indicates financial responsibility, though not weighted as heavily.
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Realistic projections: Conservative rehab budget, timeline, and ARV show understanding of flipping process.
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Exit strategy: A solid plan for selling or refinancing demonstrates ability to repay loan.
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LLC established: Forming an LLC shows professional approach and protects personal assets.
Bringing the right things to the table can get novice flippers funded, despite lack of experience. Selecting the right hard money lender is also key…
7 Best Hard Money Lenders for First-Time Flippers
The lender you choose can make or break your first flip. Here are 7 of the best hard money loans lenders for beginner investors:
1. Lima One Capital
- Minimum credit score requirement: 600
- Minimum investment experience: None
- Down payment required: 25%
Lima One specifically caters to new flippers through its “First Flippers” program. Low barriers to entry make it one of the most accessible hard money lenders.
2. PeerStreet
- Minimum credit score requirement: 600
- Minimum investment experience: 1 year
- Down payment required: 20%
PeerStreet funds both experienced and new flippers. Low rates and transparent fees make it beginner-friendly.
3. Celsius Network
- Minimum credit score requirement: 600
- Minimum investment experience: None
- Down payment required: 20%
Celsius offers crypto-backed hard money loans with no minimum rehab or experience requirements. Unique option for first-timers.
4. Anchor Loans
- Minimum credit score requirement: 640
- Minimum investment experience: 1 year
- Down payment required: 20%
Anchor Loans works with newer flippers and has funded over 850 first deals. Reasonable requirements for newbies.
5. Silver Hill Funding
- Minimum credit score requirement: 650
- Minimum investment experience: None
- Down payment required: 20%
Silver Hill allows first-timers access to its “House Flip Loan” product with low barriers to entry.
6. Prestige Capital Partners
- Minimum credit score requirement: 650
- Minimum investment experience: None
- Down payment required: 20%
No experience needed to qualify for Prestige Capital’s fix and flip rehab loans. Fast approvals for first-timers.
7. Upgrade Capital
- Minimum credit score requirement: 600
- Minimum investment experience: None
- Down payment required: 15%
Upgrade Capital specifically targets new investors with limited experience through customized loan products.
This list gives first-time flippers a variety of credible hard money lending options to fund their initial projects. But what if hard money still isn’t right for your situation? Alternatives do exist…
Alternative Funding Options for First-Time Flippers
Beyond hard money loans, rookie house flippers have a few other options to fund their first deal:
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Portfolio lenders – Similar to hard money but slightly lower rates and lender fees. Also more stringent underwriting.
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Home equity loan – Use available equity in your current home as quick access to capital for flipping.
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401(k) / IRA funds – Can invest retirement savings into a flip, but comes with major tax implications.
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Private money – Raise capital from private investors like friends, family, or private lending networks.
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Business credit cards – Quick source of smaller amounts of capital that builds business credit history.
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Business loans – Online lenders provide loans to newer businesses unable to get bank financing.
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Owner financing – Seller provides financing directly to the buyer in exchange for a higher sale price.
Each option comes with its own pros, cons, costs, and qualifications. But exploring all funding avenues is crucial to launching your first flip.
FAQs About Hard Money Loans for First-Timers
If you’re still unsure about hard money for new flippers, here are answers to some frequently asked questions:
How much can first-time flippers borrow from a hard money lender?
Loan amounts typically range from $50,000 to $500,000 for first-timers. More experienced flippers can access over $1 million. Loan size depends on factors like ARV, rehab costs, and down payment.
What information do I need to apply for hard money as a beginner?
Typical documents needed are a rehab budget, purchase contract, property information, scope of work, comps analysis, and exit strategy.
The 9 Best Hard Money Loans For Beginners
For beginners eager to dive into real estate investing, securing reliable funding is of the utmost importance. To simplify your search, weve compiled a list of the top 10 hard money lenders for beginners. These lenders cater to newcomers, offering accessible options tailored to your investment goals:
Kiavi is one of the top hard money lenders for beginners due to its pristine reputation. The lenders swift closing times, often within ten days, cater perfectly to new investors seeking quick financing solutions. Beyond this, Kiavi also appeals to more seasoned flippers by offering various options that accommodate diverse needs.
This balance of speed and flexibility makes Kiavi one of the industry ladders preferred by investors of all experience levels.
RCN Capital is one of the top hard money lenders for beginners because it offers a unique benefit: a tiered system with a track record that rewards experience with progressively lower interest rates.
This approach appeals to investors seeking flexibility and growth, allowing them to start with competitive terms and potentially access even more favorable rates as they gain expertise in the industry. RCN Capitals commitment to tailoring loan options to an investors journey sets it apart, making it an appealing choice for new home flippers.
Flip Funding is a standout choice among the best hard money lenders for beginners, primarily due to its multifaceted approach to lending. Its diverse range of loan types, competitive rates, and favorable underwriting make it a favorite among investors seeking flexible financing solutions.
Additionally, Flip Funding excels at accommodating larger loans required on tight timelines, making it an excellent option for investors with ambitious projects.
Baselane stands out as one of the premier hard money lenders for beginners, earning its reputation for its swift and efficient funding of small loans. Investors value Baselanes ability to provide quick capital injections, which can be crucial for those starting their real estate journey.
This responsiveness, combined with their understanding of the unique needs of new investors, makes Baselane a top choice among hard money lenders.
Groundfloor is an excellent choice among hard money lenders for beginners due to its attractive combination of low interest rates and extended loan terms. Investors appreciate the opportunity to secure financing with some of the most favorable terms in the industry, making it easier for them to navigate their initial steps in real estate investment.
With a focus on empowering newcomers, Groundfloors commitment to offering competitive rates and extended repayment periods makes it an excellent option for new investors.
Investors favor Residential Capital Partners willingness to work with flexible credit requirements and its remarkable offering of no required down payment.
These features empower new investors to embark on their house-flipping journey without the traditional hurdles, providing them with a supportive environment to kickstart their investment careers.
What sets AMZA Capital apart is its recognition of the potential for investors to engage in multiple property flips. With flexible options to accommodate those looking to navigate various investment opportunities, AMZA Capital provides a valuable platform for newcomers to the real estate investment scene.
This approach empowers beginners to explore multiple projects and showcases AMZA Capitals commitment to supporting investors at every level of their journey.
The appeal of CoreVest lies in its provision of a line of credit explicitly tailored for flippers, allowing them to access funds as needed for various projects.
CoreVests ability to provide substantial loan amounts is a boon for investors seeking larger-scale opportunities. By combining flexible credit options with the capacity for significant financing, CoreVest becomes a valuable resource for new investors.
Sherman Bridge Lending is a noteworthy choice for new investors seeking hard money lending options, thanks to its appealing combination of competitive rates and swift turnaround times.
However, its important to note that Sherman Bridge Lendings scope is limited to specific property types, which places it lower on the list of recommendations. While the lender offers valuable benefits for beginners, the restriction on eligible property types may narrow its applicability for confident investors.
What Is A Hard Money Loan?
Hard money loans work differently than traditional mortgages. A hard money loan is a type of financing from private individuals or organizations, commonly called hard money lenders. Unlike conventional institutional loans that are based on the borrowers creditworthiness and financial history, hard money loans are primarily asset-based and don’t rely heavily on the borrower’s credit. Investors, particularly beginners seeking a foothold in the real estate market, often turn to hard money loans due to their flexibility and unique advantages.
The appeal of hard money loans lies in their ability to bypass the lengthy approval processes typical of conventional lenders. Hard money lenders for beginners focus less on credit scores and more on the value of the property being invested in; this translates to quicker access to funds, enabling investors to seize opportunities quickly and gain a competitive edge.
With hard money loans, investors can secure funding in a matter of days, giving them the advantage of speed in a market where timing can make all the difference.