As a real estate investor, you may not have the luxury of getting approved for a traditional small business loan. Whether it’s a low credit score, a spotty payment history, or lack of down payment, you may find it challenging to find financing.
Or you may simply need money fast in order to close a deal.
One option to consider: a hard money loan. Here, we share what hard money loans are, how they work, and where to find them.
What Is a Hard Money Loan?
Hard money loans, also called bridge loans, are short-term funding used in real estate investment. The term “hard” refers to the hard asset — in this case, the property itself. Many investors use these loans to flip properties, and hard money lenders are private lenders (or private money lenders) looking for a high return without having to rehab or purchase a property themselves. They are most interested in the fundamentals of the deal: the property’s value or, in particular, the after-repair value (ARV).
The loan is based on what the lender believes the property will be worth in the future, which differs from traditional lenders who only look at the current value. So you may not need a good credit score to secure a hard money loan.
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Do Hard Money Loans Require Down Payments?
Maybe. Many real estate investors are looking for deals that involve no money down. That may be possible with private money loans if the fundamentals of the deal justify it. (However, it’s also not uncommon for lenders to require a downpayment of 10% though that may be based on the value after repairs.) These are short-term loans so you may not even have to make monthly payments if you sell the investment property quickly enough.
Looking for 100% financing? Hard money loans may be the answer if you want to bring little of your own money to the deal. Note that some lenders may offer up to 90% to 100% of the purchase price and 100% of the rehab budget, as long as that will total less than 70% to 75% of the after repair loan-to-value (ARLTV).
Do You Need Good Credit for a Hard Money Loan?
Not necessarily. With a hard money loan, the lender or investor is typically more interested in the property than in the borrower’s credit score. That makes it a more flexible option for some investors with bad credit scores. Some lenders require a credit check, though, and some have minimum credit score requirements. Make sure you understand the lender’s policy.
Of course, even if you don’t need a good credit score to qualify, good personal FICO scores and strong business credit can help you or your business qualify for more financing options. Establish business credit as early as possible in your business journey.
Is There a Difference Between a Hard Money Business Loan and a Hard Money Real Estate Investor Loan?
A hard money business loan and a hard money real estate investor loan are two ways of saying the same thing. Hard money loans are used in real estate investment to allow borrowers to flip properties without having to fund the project completely by themselves. The investor conducts an appraisal to determine how much the property will be worth after it’s rehabbed. These loans are typically shorter term than traditional loan options and may come with a higher interest rate.
90 Percent LTV Hard Money Loans
A loan that is 90% loan-to-value (LTV) means that the lender is willing to fund 90% of the appraised future value. Remember, hard money loans rely on the value after repairs and rehab have been completed. So with a 90% LTV hard money loan, you’ll be responsible for funding the remaining 10% of the project.
80 Percent LTV Hard Money Loans
Similar to a 90% LTV loan, an 80% LTV hard money loan will fund only 80% of the loan-to-value. The lender considers what the potential value will be after renovations are complete. With this type of loan, you’ll need to bring a larger chunk of cash (the remaining 20%) to the table when you make the deal.
Best Hard Money Loans for Real Estate Investors
Here are top picks for best hard money lenders for real estate investors:
AMZA Capital is one of the leaders in the hard money lending space. It offers real estate loans with a minimum purchase price (before rehab) of $75,000 or higher.
It requires a minimum personal credit score of 650, and a higher score to qualify for some of their better terms and rates.
Although terms will vary depending on the deal, it gives this example for a single-family fix and flip loan:
- Term: 12 months, 6 month extensions available
- Rates: 10% – 13%
- Lender Fees: 2% – 5%
- Closing Costs: $999
- Time to Funding: 2-4 weeks
More importantly, Amza Capital prefers to work with investors with experience—at least 5 flips. First-time or inexperienced investors need to work with a mentor or a licensed contractor during the application process.
It also offers a fix and flip credit line of $3M – $50M and buy to rent loans of at least $100,000 with a minimum property value of $135,000.
*All information about Amza Capital loans has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
Easy Street Capital
A private lender based in Austin TX, Easy Street Capital offers a high leverage fix & flip / bridge loan product. There is no appraisal required and qualified loans can close in 48 hours. Rates starting at 9.9% – 11.9%.
It offers loan amounts of $75,000 to $2 million with LTCs of up to 90% and LTVs of up to 70% for terms of 6-12 months with extension options.
No appraisal is required and a minimum credit score of 600 is required. It offers loans in most states, with several exceptions: LA, MN, MO, NV, NY, SD, ND, Baltimore, Chicago, Detroit, Inner City NJ.
*All information about Easy Street Capital has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
Express Capital Financing
Among other loans, Express Capital Financing offers several types of real estate loans, in loan amounts of $100,000 up to $50 million. It offers fix and flip loans for 1-4 unit non-owner occupied rental properties. If you qualify, you can close within 5-7 days.
These are asset-based loans and income verification is not required. Your business must be an LLC or corporation and the property must be non-owner occupied.
*All information about the Express Capital Financing has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
Jet Lending makes loans in all 50 States for short-term and long-term real estate investment properties. Their asset-based loans are able to close very quickly, within 3 days from an appraisal report and clear-to-close from the title company.
It makes a variety of real estate loans, including buy, fix, and sell; buy, fix, and rent; short term and long term rentals and commercial properties.
Jet Lending offers clear qualification guidelines on its site. For example, for a buy, fix and sell loan you must have a minimum credit score of 620, and a US business entity in good standing, among other requirements.
It can make loans of up to 100% of LTC/AIV. LTC means loan to cost and refers to the loan amount compared to the total cost of the development while AIV stands for As Is Value, or the market value of the property before repairs are made.
It also offers up to 100% rehab loans to investors with approved experience.
*All information about Jet Lending has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
Kiavi leverages technology to make the real estate loan process smoother and faster. It offers several types of real estate investment loans, including Fix & flip / bridge loans for short-term financing; construction loans; and DSCR rental loans. It lends in 32 states plus the District of Columbia.
Kiavi currently offers single asset bridge and rental property loans for 2-4plex, attached/detached-pud, and single-family properties. You must have a business entity.
Fix and flip loans can go up to 95% LTC / 80% ARV. (Reminder: LTC stands for loan to cost, and ARV is after repair value.)
They also offer a weekly webinar to walk prospective borrowers through the lending process.
*All information about Kiavi has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
While they don’t claim to be able to offer 100% fix and flip financing, LendingOne can cover up to 90% of purchase and rehab costs, from $75,000 up to $10 million. It specializes in fix-and-flip lending that includes repair costs. LendingOne will lend on the purchase and often 100% of the rehab costs.
It also offers options that can convert fix and flip loans to fix to rent (BRRR).
With an emphasis on user-friendliness, their focus is on bringing simplicity to the application process. They offer loans for a range of deals, including foreclosures and mixed-use properties, but properties must be non-owner occupied. Eligible properties include single family residences (SFR); 2-4 unit properties; condos and townhouses.
You must have a business entity: LLC, corporation or limited partnership/general partnership. It lends in most states with the exception of Alaska, Nevada, North Dakota, South Dakota, and Utah.
Note that LendingOne says it falls between a hard money lender and banks. Their website says, “We are easier than a bank and ask for less documents, but are cheaper than hard money since we ask for a few more documents.”
*All information about LendingOnehas been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
A nationwide hard money lender based in Austin TX, HouseMax Funding makes fix and flip and rental loans in all 50 states. Its goal is to close loans in 10 days or less. It is a direct lender which means it makes loan decisions and funding directly.
To prequalify, you’ll need:
- Loan application
- One form of government issued photo ID
- Financial and bank statements from last 60 days
- Purchase contract
- Details of renovation plan
It doesn’t provide rate or funding details on its website. Instead you’ll need to contact the company with your loan details to get a quote.
*All information about the HouseMax Funding has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.
Best Hard Money Lenders for Small Businesses
While hard money loans are more commonly associated with real estate investment, some hard money lenders also offer loans to small businesses. Finding the best hard money lender for your small business involves considering various factors:
Reputation and credibility:
- Research the lender’s reputation and history. Look for online reviews, testimonials, and feedback from previous borrowers.
- Verify their licensing and credentials. Make sure they’re a legitimate and registered lender in your state or jurisdiction.
Interest rates and terms:
- Hard money loans often come with higher interest rates compared to traditional bank loans. Compare interest rates and terms from different lenders to find the most favorable terms for your business.
Loan amount and loan-to-value (LTV) ratio:
- Determine how much funding you need and whether the lender can provide the required amount.
- Check the LTV ratio, which is the percentage of the collateral’s appraised value that the lender is willing to lend.
- Understand what assets the lender accepts as collateral. Real estate is the most common form of collateral for this type of loan.
- Hard money loans are usually short-term, often ranging from several months to a few years. That means your monthly payments will likely be higher.
Fees and costs:
- In addition to interest rates, be aware of any upfront fees, closing costs, and other charges associated with the loan. These can significantly impact the overall cost of borrowing.
Speed of approval and funding:
- Hard money loans are known for their quick approval and funding process, but the speed can vary between lenders. If you need funds urgently, it might make sense to prioritize lenders that can provide a fast turnaround.
Remember that while hard money loans can provide quick access to capital, they often come with higher costs and shorter terms than traditional loans.
How to Get 100% Financing With a Hard Money Loan
Not all hard money lenders offer the same types of loans to everyone. Hard money loans are a powerful tool for securing 100% financing, but not all borrowers will qualify. Here are a few ways to help ensure you get no down payment financing on your project.
- Make sure your deal is less than 70% ARV. Your ARV, or after repair value, should be less than 70%. That includes the property purchase price, rehab and loan costs.
- Maintain a solid credit score. While a good credit score is helpful to get a traditional loan, it’s also a good idea to have one for a hard money loan. You can still get a hard money loan with fair or poor credit, but you might not get 100% financing.
- Gain experience. Many hard money lenders won’t give money to borrowers if it’s their first time flipping a house. Having the experience of house-flipping can be in your favor.
- Be flexible in coverage. Some hard money lenders will cover the purchase price, but not other expenses (like repair costs, for example). You might have to cover some of the costs out of pocket (maybe business or marketing costs). With that being said, 100% financing might be different, depending on the lender.
- Consider the limit. Don’t be surprised if a hard money lender has a maximum loan amount you can get. If your property is worth more than the limit, you might be able to get the max loan amount, but not have it cover all your necessary costs.
How to Fund Your Down Payment if Your Lender Requires One
Traditional mortgage lenders usually require a down payment. Hard money lenders aren’t obligated to, but some do. If your hard money lender requires some upfront cash, you could get it from a few different places, including:
Business credit cards
You may be able to use funds from a business credit cards either as a down payment or to finance repairs. Keep in mind that there are typically fees associated with taking out a cash advance, and APRs for cash advances are higher than what you’d pay on your regular purchases. Some credit cards offer 0% balance transfers for 6 to 18 months, and allow you to deposit those funds into your bank account. This can be a cost-effective way to help finance your property. (Remember that after you get your hard money loan, you’ll be responsible for paying back your loan as well as your advance at the same time.)
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A personal loan can be used for anything, including a down payment on a home that you might not live in. Interest rates on personal loans are usually lower than those on credit cards, but they vary depending on your lender and creditworthiness. Personal loans heavily weigh your credit score when considering you as a borrower, which means that the lower your credit score, the higher your interest rate. Like a credit card cash advance, you’ll be paying off your personal loan as well as your hard money loan at the same time, which could mean your bank account can take a huge hit.
Family and friends
If you don’t have the financial history to prove your creditworthiness, you might have better luck with those that personally know you. Try asking family and friends for down payment cash. They’re more likely to be lenient on repayment options, which means you might not have to make two loan payments at the same time. Even so, you should have some sort of contract in place that details your loan, interest rate (if any), repayment plan, and any fees, if your loved ones want to implement them. Have a deadline in place so both you and your relatives know when the money should be paid back in full.
Home equity line of credit
A home equity line of credit (HELOC) can be helpful if you already have a primary residence. Your home is used as collateral, and there is less red tape to go through. Interest rates tend to be lower since your home is used to secure the loan, similar to a hard money loan. If you don’t make timely payments on your HELOC, though, your home can be seized. Use this if you’re confident in making payments to both a HELOC and your hard money loan at the same time.
Personal line of credit
A personal line of credit, similar to a HELOC, might be a better idea if you don’t have a home to use as collateral. It’s still a revolving line of credit, but you might face higher interest charges compared to a HELOC since it’s an unsecured line. It also means your credit score and credit history are more heavily scrutinized to see if you’re worthy of lending money to.
You can use your retirement savings as a down payment in a few different ways. You can take out a 401(k) loan—if your plan allows it—and make payments according to the terms your 401(k) provider sets. You could also use a distribution from your 401(k) if you’re using it as a first-time homebuyer, which may help you avoid tax penalties (check with your tax advisor). Generally, though, you should skip taking money from your future self, because there’s no way to make up for the money you’ve earned due to contribution limits. Even if the amount you’re borrowing isn’t that much.
Business loan or line of credit
For house-flippers that do this full-time rather than on the side, you might have a full-fledged business to run. If you need a down payment for your hard money loan, look into a small business loans or lines of credit. Business lines of credit, like HELOCs and PLCs, allow you to borrow only what you need. In this case, just enough for a down payment. As a company, you may qualify for this alternative funding method.
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When Should a Hard Money Loan Be Refinanced?
It usually takes at least three months to one year to refinance a hard money loan. You’ll have to wait until you finish construction to refinance a rental or commercial property hard money loan. Additionally, your finances must be in place before you may be able to qualify for another type of mortgage. If your credit score or payment history isn’t great, you may have to wait until you build those up to refinance. You’ll also want to work with a refinance lender after you confirm that you have enough equity in the property to pay off the hard money loan.
Lenders That Refinance Hard Money Loans
While there are lenders that are willing to refinance hard money loans, it will likely be more complicated than refinancing a conventional mortgage. You’ll probably refinance into one of the following:
- Traditional bank loan
- Federally backed loan
- Long-term rental loan
Lenders may require you to wait up to one year before they’ll do an appraisal on the after repair value of a home, so it may be tricky to refinance a hard money loan immediately. Make sure you understand whether or not you’ll pay a fee for prepaying your hard money loan and how much it is before going forward with refinancing — and ideally avoid prepayment penalties in the first place.
Can You Refinance a Business Loan With a Hard Money Loan?
Possibly but it will depend on the situation. Hard money loans typically require property as collateral. If you have commercial real estate with equity available, you may be able to use that to refinance a different type of loan. Depending on the loan type, you may wind up with a more expensive loan. But it may be possible to save money because some unsecured business loans carry very high costs.
Can You Refinance a Business Loan With Hard Money and Pull Cash Out?
Again, the answer here is it depends on a number of factors. The main ones will be how much equity you have in a property (the value of the property minus any liens) and the loan purpose.
If you own a property free and clear, for example, you may be able to get a hard money loan quickly by pledging that real estate as collateral. But if you don’t have a lot of equity and you’ve already borrowed against it, a lender may view refinancing the property and offering cash out as risky. Whether you can find one that will work with you will depend on a lot of factors that all boil down to how risky the loan is for the lender.
Should You Get a Hard Money Loan?
Before you jump to an application, make sure getting one is the right decision.
- Is it for flipping a house? Short-term financing, like flipping a house or updating a rental property, would be a good time to look into hard money loans. If you’re looking to buy a home to live in, consider a conventional, FHA, or another type of traditional mortgage.
- Have you flipped homes before? If this is your first time house-flipping, you might not qualify for a hard money loan. This type of financing is better for someone who’s done this before, rather than someone who’s going into it cold.
- Do you have any cash for additional financing? Whether it’s for a down payment or covering what a hard money loan won’t, you’ll need to have funding from an alternative source for other things. Otherwise, you might have to resort to taking out an additional loan. If your property doesn’t sell right away, you might be on the hook for more money than you had originally planned. Having money for a down payment, or whatever a hard money loan won’t cover, might be the determining factor between getting approved and denied for a hard money loan.
- Do you need 100% financing? Hard money loans may be an answer if you are trying to buy an investment property. (If you are buying a single-family residential property to live in, or even multi-family up to four units where you’ll live in one of them, other options like FHA or VA loans may offer a low down payment with lower rates.)
If you need financing fast, you may want to consider other loan programs that offer quick funding, including:
Business credit cards
Some business credit cards offer 0% intro APRs for up to a year or even longer. This could be an affordable way to get short-term financing for your business.
Business cash advance
If your business has strong documented revenues, there are lenders that may advance funds within hours after approval. Like hard money, this is often at a higher rate so make sure you understand the cost.
Business line of credit
This is one of the most popular types of business loan products because, once approved, it offers the business the ability to borrow as needed.
Before applying, Nav can help you see instant business financing options tailored to your business. You’ll be able to browse small business loans in real-time, as well as access tools to help with cash flow and more.
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What is a hard money lender and how does it work?
A hard money lender is a private individual or organization that provides short-term, asset-backed loans, often with higher interest rates and fees than traditional lenders. These loans are typically used for real estate investments or in situations where borrowers cannot qualify for conventional financing due to credit issues or the need for quick funding. Hard money lenders base their lending decisions primarily on the value of the collateral (usually real estate) rather than the borrower’s creditworthiness.
Is a hard money loan a good idea?
Whether a hard money loan is a good idea depends on your specific financial situation and needs. Hard money loans can help small business owners get quick access to capital. They’re often used in real estate investments where speedy funding is essential. However, they come with higher interest rates and fees, so they can be expensive. It’s crucial to carefully consider the costs, your ability to repay, and your exit strategy before taking out a hard money loan.
What is an example of a hard money lender?
AMZA Capital is one example of a hard money lender. You’ll see a variety of hard money lenders featured earlier in this article.
What credit score is needed for a hard money loan?
Hard money loans don’t rely on creditworthiness to determine an applicant’s eligibility. Instead, they use the value of the collateral to determine the loan amount, rates, and terms for any borrower.
Are hard money loans only for bad credit?
Because hard money loans typically come with higher interest rates than other types of small business loans, it’s best to shop around to see if your credit is high enough to qualify for a more affordable option. Hard money loans can help business owners who are struggling to get financing elsewhere.
This article was originally written on November 20, 2019 and updated on February 23, 2024.
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