I Need A Hard Money Loan ASAP: Your Complete Guide

Hard money loans have become an increasingly popular option for real estate investors and flippers who need fast financing. But what exactly are hard money loans, and when should you consider getting one?

In this comprehensive guide we’ll explain everything you need to know about hard money loans, including what they are, how they work when you may need one ASAP, and your alternative options.

What Is A Hard Money Loan?

A hard money loan is a short-term loan provided by private lenders and secured by real estate The “hard money” refers to the fact that the loan is backed or secured by real property, like land, buildings, or houses.

Hard money loans are given by private lenders or companies rather than banks or traditional mortgage lenders. They are considered “non-conforming” loans.

Some key features of hard money loans:

• Provided by private lenders, not banks
• Secured by real estate property
• Short term, usually 1-3 years
• Higher interest rates and fees
• Faster approval and funding

Hard money loans are given based on the value of the real estate securing it rather than the borrower’s creditworthiness. This makes them easier to qualify for than conventional mortgages.

The short terms and higher costs offset the lender’s risk in providing these loans.

When Would You Need A Hard Money Loan ASAP?

There are several situations where getting hard money loan funding as soon as possible could be extremely helpful:

House Flipping

Hard money loans are commonly used by house flippers who need funds quickly to purchase and renovate a property for resale.

The short terms of hard money loans fit the short timeline of a house flipping project. Flippers can access funds fast to buy a property, finance renovations, and sell for a profit within months.

Real Estate Investments

Investors often use hard money loans when they need to act fast to purchase an investment property like a rental home, apartment building, or commercial space.

The quick turnaround of hard money loans allow investors to take advantage of time-sensitive deals.

Credit Issues

Borrowers with poor credit, bankruptcies, or other issues may not qualify for conventional mortgages and other financing options.

Hard money loans have less strict credit requirements, so they can be a good option for these borrowers to access funds fast.

Alternative To Bridge Loans

Some use hard money loans as an alternative to bridge loans when buying and selling properties at the same time. Hard money loans can provide the quick financing needed.

How Do Hard Money Loans Work?

Although creditworthiness isn’t considered, hard money lenders do look at other factors before approving loans:

• Property value – Hard money loans are backed by real estate, so the value of that property is critical. Lenders will assess the property’s value to determine the loan amount.

• Loan-to-value (LTV) ratio – The loan amount in relation to the property’s appraised value. Hard money lenders often prefer a maximum of 65-75% LTV.

• Debt-to-income ratio – Your monthly debts in relation to gross monthly income. Lenders may have DTI requirements to ensure you can afford payments.

Once approved, you’ll get funding very quickly, often in a week or less. Lenders can close and fund the loans fast because they don’t rely on traditional underwriting.

However, hard money loans come at a price:

• Higher interest rates – Typically 8-15% compared to 3-6% for conventional mortgages. The higher rate offsets the lender’s risk.

• Higher fees – Origination fees of 2-5% and other closing costs are common.

• Large down payments – At least 25-30% down is typical.

How To Get A Hard Money Loan ASAP

If you’ve determined a hard money loan is your best quick financing option, here are some tips for getting funds ASAP:

• Check property eligibility – Not all properties will qualify, so review any requirements from lenders upfront.

• Get pre-approved – Many hard money lenders allow you to get pre-approved by submitting just basic documents and property details. This speeds up the final approval process.

• Have your paperwork ready – Lenders will need property details, purchase contracts, rehab budgets, and other documents to underwrite the loan.

• Know your numbers – Come prepared with projected rehab costs, ARV, expected profit, and your desired loan amount and terms.

• Build relationships – Having contacts with hard money lenders can help secure funding faster when you need it.

• Shop for the fastest funding – Some hard money lenders specialize in lightning fast closings and fundings.

Pros and Cons of Hard Money Loans

Hard money loans can be a quick financing solution, but they also come with drawbacks to consider.

Pros

• Fast approval and funding
• Alternative for those with credit issues
• Secured by the property rather than credit
• Usually easier to qualify

Cons

• Very high interest rates
• Large upfront fees
• Short repayment terms
• Risk of foreclosure if payments missed
• Difficulty getting extensions if needed

Alternatives To Hard Money Loans

While hard money loans allow fast access to funds, they are one of the most expensive financing options due to high rates and fees.

Before pursuing a hard money loan, be sure to consider some alternative options:

• FHA loans – Government-backed mortgages that are more lenient with credit requirements

• VA loans – Offered to veterans and military members with easier approval

• Home equity loans – Leverage your home equity at lower rates than hard money loans

• Personal loans – Unsecured loans from online lenders and credit unions

• 401(k) or IRA loans – Borrow from your retirement savings (with caution!)

• Private money loans – Similar to hard money loans but slightly lower rates

• Seller financing – The seller carries the mortgage for you

• Crowdfunding – Pool funds from multiple online investors

While these may take more time and paperwork, they could save substantially on interest costs and fees.

Key Takeaways

• Hard money loans allow real estate investors to access funds quickly by using a property as collateral rather than credit.

• High interest rates, fees, and stringent terms make them one of the most expensive financing options.

• They are best for those who need money fast and can’t qualify for other loans or don’t have time to wait.

• There are alternatives that may be cheaper over time even if they have a longer approval process.

• Do your homework and consider all options before deciding a hard money loan is your best route.

Getting a hard money loan ASAP can provide the fast cash you need to jump on a real estate deal or investment. But this speed and flexibility comes at a steep price.

Make sure you understand the risks and compare all your options first so you can make the most informed decision. With the right approach, hard money loans can be an effective tool for your real estate investing goals.