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What are Hard Money Loans?
Hard money loans are a specific type of asset-based loans that are secured by real estate collateral. Hard money loans are generally given through private investors or companies. For example RCN Capital's loans are hard money loans which are backed by investor’s non-owner occupied residential real estate.
Who Uses Hard Money?
The main individuals who utilize hard money loans are real estate investors, developers, fix and flippers, and buy and hold investors. The ability for hard money lenders to fund much faster than a traditional bank helps those who are trying to acquire a property with competing bids, and sellers who want a quick close. In many situations, hard money lenders can issue funds in as little as 10 business days, while traditional banks have a wait time of 30-50 days for funding.
What is the interest rate?
Interest rates charged by hard money lenders can vary depending on the lender and on the location of the property. For example lenders in California are much more competitive with their rates and will usually offer lower interest rates than other areas of the U.S.
Overall, interest rates range between 8%-18% depending on the lender’s perceived risk of the loan and the location of the property. Due to the risk involved, hard money lenders have higher rates than traditional lenders. RCN Capital’s rates start at 8.99% for experienced investors and then can range up to 12% for first-time investors.
How long is the loan term?
Hard money loans are generally all short term loans, ranging from 6 months to 18 months. Depending on the specific lender you choose, you can also find longer term loans in the 3+ year range. Typically though, the investors who are using hard money are using them for the quick turnaround times and the ability to acquire, renovate, and sell a home all in a couple months. For investors who are looking to buy and hold a property, these short term loans are considered bridge loans, where investors refinance the property with a traditional lender who have longer terms.
What are typical Loan-to-Value ratios?
Loan-to-Value ratio, or LTV, is the amount of money hard money lenders can lend on a specific property. The LTV is determined by the ratio of the loan amount divided by the value of the property. Most hard money lenders can lend up to 65% to 75% of the property’s current value. Other lenders, such as RCN Capital, lend based off the After-Repair-Value of the property. The After-Repair-Value of a property or, ARV, is the appraised value of the property once repairs are completed. Some lenders can offer up to 55% to 70% of the ARV. RCN Capital has a specific Loan Program, where we can fund up to 85% of the purchase price and 100% of the renovation costs, not exceeding 75% of the After-Repair-Value of the property.
Are there costs associated with Hard Money?
Lenders require Title Policy, Insurance, and Appraisal fees are paid by the borrower, and some lenders may have application fees. RCN, however, does not charge any upfront fees during the pre-approval and approval process such as an application fee. Though, the borrower is responsible for third party fees such as appraisals or project feasibility studies.
How much does the credit score really matter?
Most hard money lenders do run credit checks, but mostly to look for the borrower’s ability to repay the loan. Typically, credit score requirements depend on the exit strategy of the investment.
RCN Capital’s After Repair Value loan program as well as our commercial loan program do have a minimum FICO requirement of 600. For some of our other loan programs, RCN does not have a set minimum but the borrower’s credit score is taken into consideration when underwriting the loan. RCN reviews the individual’s history to determine if there is a repeating pattern of poor financial management or if an isolated incident affected the individual’s credit. We also look at the borrower’s credit in terms of the exit strategy. If the borrower intends to buy and hold rather than fix and flip the property, we will pay closer attention to FICO scores.
As a direct private lender, RCN Capital is here to help you fund your next fix and flip or fix and lease property. Our experienced loan officers and in-house underwriting help the process run smoothly and quickly.
For more information on how RCN can help you, visit RCNCapital.com