Hard Money Construction Loans: A Broker’s Guide to Fast Financing

If you’re working with real estate developers or investors, you’ve likely heard about hard money loans. But what exactly are hard money loans, and how can they benefit your clients? Unlike traditional financing, which is often slow and full of red tape, hard money loans for new construction are based on asset value rather than credit scores. That means quicker approvals, more deal flow, and a competitive edge in a fast-moving market.

As a broker or wholesale lending partner, knowledge of the inside scoop on hard money construction loans is key to leading your clients through the loan process. Within this blog, we'll provide an overview of all you want to know regarding hard money loans for new construction, so that you can set yourself up as a trusted adviser and assist your clients in thriving.

What Is a Hard Money Loan?

A hard money construction loan is an asset-based loan collateralized by the property itself. Hard money lenders for new construction are less concerned with creditworthiness, as are traditional lenders, and instead look at the value of the property—both as it stands today, and how it will value once construction has been completed.

For wholesale lending partners like mortgage brokers and private lenders, these loans provide a useful alternative for clients who:

• Require fast funding to capture a property
• Have been rejected by banks because of strict lending standards
• Like having the freedom to go to flexible financing for smaller projects
• Require financing based on asset value instead of income history

New construction hard money lenders will normally fund projects in phases, disbursing capital as various parts of the build are finished. This format ensures that projects remain on schedule while limiting risk to lenders and borrowers.

Why Hard Money Loans Are Ideal for New Construction

New construction projects typically need immediate access to capital and flexible terms, and that's where hard money loans excel. Here's why your clients ought to consider them:

1. Fast Approval and Funding

Timing is everything in the real estate development industry. Conventional loans take weeks or months to close, but hard money lenders can have a loan approved and funded within 7-10 days. This rapid pace of funding is life for developers who need to acquire land, start construction, or capitalize on timely opportunities.

How Brokers Can Help:

• Lender Connections: Partner with trusted lenders like RCN Capital to offer your clients fast, reliable financing.
• Project Planning: Help your clients prepare the necessary documentation to streamline the approval process.

2. Flexible Terms

Hard money lenders are flexible. They can format loan terms to meet your client's project time frame and cash flow requirements. If your client requires a short-term loan, hard money lenders can meet those needs.

How Brokers Can Help:

• Customized Solutions: Work with lenders to create loan terms that fit your client’s specific needs.
• Repayment Strategies: Help your clients plan for repayment, whether through the sale of the property or refinancing.

3. Easier Approval Process

Conventional banks have strict lending standards, such as credit history, income documentation, and debt-to-income ratios. Hard money lenders are more concerned with the value of the property and whether or not the project can be made to work.

How Brokers Can Help:

• Credit Challenges: Assist clients with less-than-perfect credit by connecting them with hard money lenders who prioritize collateral over credit history.
• Project Feasibility: Help your clients present a strong case for their project, including detailed plans and projected returns.

Key Considerations for New Construction Projects

While hard money loans offer many advantages, there are important factors your clients need to consider before diving in.

1. Short-Term Nature

A majority of hard money loans are short-term, running between 6 months and 3 years. This is compatible with new constructions, which involve the need for immediate financing to be repaid after the completion of the property and its subsequent sale. Yet, in the event of a delay in the project, your clients will be required to incur extra charges like loan extensions or increased interest.

How Brokers Can Help:

• Timeline Planning: Work with your clients to create a realistic project timeline that accounts for potential delays.
• Contingency Plans: Help your clients prepare for unexpected challenges, such as construction delays or market changes.

2. Loan-to-Value (LTV) Ratio

Hard money lenders usually fund the loan based on the loan-to-value (LTV) ratio, or percentage of the property's value the lender will lend. In new construction, this is typically the after-repair value (ARV)—the estimated value of the property once it's finished. Most lenders provide 60-75% of the ARV, so your clients will have to cover the difference using other sources of funding or their own money.

How Brokers Can Help:

• ARV Calculations: Assist your clients in calculating the ARV and determining how much financing they’ll need.
• Funding Strategies: Help your clients explore additional funding options, such as equity partners or personal savings.

The Application Process for a Hard Money Loan

Obtaining a hard money loan is usually easier and quicker than securing a traditional mortgage. Here's what your clients can look forward to:

1. Find a Lender

The first step is to locate a credible hard money lender. As a broker, you can provide value by linking your clients with reputable lenders such as RCN Capital.

How Brokers Can Help:

• Lender Vetting: Research lenders and provide your clients with a shortlist of options.
• Loan Comparisons: Help your clients compare loan terms, interest rates, and fees to find the best fit.

2. Submit a Loan Proposal

Hard money lenders focus primarily on the value of the property and the feasibility of the project. Your clients will need to provide detailed information about the land, the construction plan, and the estimated ARV.

How Brokers Can Help:

• Document Preparation: Assist your clients in gathering and organizing the necessary documentation.
• Proposal Writing: Help your clients present a compelling case for their project, including financial projections and market analysis.

3. Review and Approval

Upon receiving the proposal, the lender then examines the project and sets terms for the loan. This would normally be brief, with loan approvals made even within days. Once the loan is approved, the money, in turn, is usually distributed in stages or draws in correlation with various aspects of the building process.

How Brokers Can Help:

• Draw Management: Help your clients manage the draw process to ensure funds are released on time and used efficiently.
• Communication: Act as a liaison between your clients and the lender to address any questions or concerns.

Is a Hard Money Loan Right for Your Clients?

Hard money loans are a great choice for new construction developments, particularly when time and flexibility are of the essence. But they come with risks. Higher interest rates and shorter repayment periods mean these loans are ideal for developers who have a defined project plan and schedule.

How Brokers Can Help:

• Risk Assessment: Help your clients weigh the pros and cons of hard money loans based on their specific needs and goals.
• Alternative Options: Explore other financing options, such as traditional loans or private equity, if hard money loans aren’t the right fit.

Why Brokers Choose RCN Capital for Hard Money Loans

At RCN Capital, we understand the unique needs of real estate developers and investors. That’s why we offer fast, flexible financing solutions designed specifically for new construction projects.

Why Brokers Choose RCN:

• Competitive Rates: We offer some of the most competitive rates in the industry, ensuring your clients maximize their profits.
• Fast Closings: We can close loans in as few as 10 business days, helping your clients move quickly on opportunities.
• Broker-Friendly: We value our relationships with brokers and offer dedicated support, fast approvals, and competitive commissions.

By partnering with RCN Capital, you can provide your clients with the financing they need to succeed while growing your own business.

Be the Go-To Broker for New Construction Financing

Hard money loans are a powerful tool for new construction projects, offering speed, flexibility, and accessibility that traditional financing can’t match. As a private lender dedicated to supporting brokers and wholesale lending partners, we can provide you with the resources you need to guide your clients through the financing process and help them achieve their goals.

Ready to take your brokerage to the next level? Connect with RCN Capital today and see how we can help you and your clients succeed in the competitive world of real estate investing.