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A hard money loan is a type of short-term financing secured by real estate. Unlike traditional loans that are based on the borrower’s creditworthiness and income, hard money loans are based on the value of the property being used as collateral. They are provided by private lenders like Source Capital rather than traditional banks, allowing for quicker approval and funding.
Source Capital’s hard money loans offer several benefits to borrowers, including:
- Speed: We can fund hard money loans within 7-10 days.
- Easy qualification: Our hard money loans are accessible to borrowers with poor credit, little or no income and those with past bankruptcy, foreclosure, etc.
- Simple process: At Source Capital, we offer a web-based, streamlined platform that allows for less paperwork and constant communication with our clients.
- Direct source: We are the lender so the process from initial contact to funding is handled in-house which saves our clients time with a single point of contact.
There is little to no difference between a private money loan and a hard money loan. In both cases, they are loans secured by real estate financed by individual investors instead of traditional (bank) sources.
The “hard” part of “hard money” refers to a hard asset, real estate, that is used as security for the loan. The “private” part of “private money” refers to the source of funding (private party vs a bank).
Unlike traditional mortgages or other types of secured loans, the approval process for hard or private money loans is much faster and less stringent, making them ideal if funding needs to happen quickly.
Our loans can fund a max of 75% of the after repaired value of your property, to be determined by appraisal. Our purchase/rate and term loans are capped at 80% LTV and cash out programs can fund up to 75% of the current value of the property.
We provide financing for purchase only, buy and hold, purchase and rehab, refinance/cash out, rehab only, new construction and multi-family/mixed use projects.
Just visit our website, www.CapitalFunding.JCREIG.com, and click the “Apply Now” tab. Then complete the short application. After submission, we review your deal and follow up with terms, usually on the same day.
Never! This is usually the first sign of a scam.
No recent bankruptcies or foreclosures in the past 2 years.
We can lend as little as $75,000 and as much as $10,000,000. Approvals are not solely based on equity. We must make sure you can afford the monthly interest-only payments on your requested loan.
Most of our loan programs require a down payment of at least 10-20%, but we do offer 100% funding for fix and flip loans for borrowers that qualify.
Yes. Once you are pre-qualified, we can begin issuing proof-of-funds letters. We can submit these as frequently as needed as general letters or specific to the property address and offer price the client requests to be disclosed.
We can close deals as soon as 10 business days. Timing is contingent upon appraisal, clear title, and requested documents being submitted in a timely manner.
Yes, if the property is owned free and clear (no liens), we can fund 100% of the repairs. Up to 70% of the ARV.
We will not take second lien position ever on a property.
No, we do not charge a prepayment penalty on short term loans. We encourage a quick flip.
Yes, you can close under an LLC, trust or corporation. However, one owner must still be the personal guarantor on the loan. Some loan programs allow you to close in your personal name as well.
You have several options to apply: you can either complete our online loan submission, email us, or call us directly. We find that discussing your loan scenario over the phone is often the most efficient approach, as we can quickly assess how to best assist you once we have a few key questions answered. Contact us now to speak directly to a decision maker.
General Questions
We do not provide financing for primary residence purchases as we fund loans for business purposes only.
Business purpose loans are defined as loans to: purchase, repair or improve real property for use in the Borrower’s business; acquire, improve or maintain certain non-owner occupied rental property; purchase, improve or repair tools, equipment, machinery, fixtures or furnishings used in Borrower’s business; fund operating capital (e.g., employee salaries) or purchase or pay for business inventory, supplies, rent, taxes, insurance or other related expenses; or to pay off, refinance or consolidate business debts.
DSCR stands for Debt Service Coverage Ratio. This is a tool that helps a borrower's ability to repay a loan by evaluating the property's monthly rental income.
DSCR is a straightforward method of measuring cash flow, determined by dividing the monthly rent by the total monthly costs, which include the principal, interest, taxes, and insurance (together known as PITIA).
For commercial and mixed use property, DSCR is calculated by dividing the annual Net Operating Income (NOI) by the annual debt service (PITI). The difference with this approach is you are including the other operating expenses like utilities, maintenance, management fees, janitorial services, etc.
The ratio is calculated by dividing the property income (rental income) from the property PITIA (principal + interest + taxes + property insurance+ homeowners association dues). The resulting ratio lets the lender know how much income is available to pay the mortgage. A ratio of 1.0x means that the property that the revenue from rental income AND expenses is equal. A DSCR above 1 means the property is positively cash-flowing. Conversely, a DSCR of less than one means that the expenses exceed the rental revenue and the property has a negative cash-flow.
Minimum Down Payment
DSCR loans, also known as investment property loans, Non-QM loans, or rental loans, have become very popular lately. But why all the buzz? While investors can still get traditional loans or funds from small banks, these options are difficult to qualify for and require significant cash reserves. DSCR loans are made for real estate investors and use the rental income from the property to help qualify for the loan. Let’s break it down.
Based on the Property's Rental Income, Not Your Income
Experienced real estate investors or self-employed people without W-2s often have trouble meeting the strict requirements of conventional loans. These loans require good credit, high reserves, and proof of income. They are also underwritten using a Debt-to-Income (DTI) ratio, which compares your personal debt to your personal income. If you’re trying to get a loan for a rental property, the payment for that loan is included in your DTI calculation. You might be able to offset this new payment with rental income, but it depends on how well you can prove the expected rent. Investors with extra income from other sources might cover the gap in their DTI, but self-employed investors or those with multiple mortgaged properties might not have the extra income to make up for it. DSCR loans don’t use DTI at all. Instead, they look at the property’s rental income compared to the loan payments, making it easier for investors to qualify.
Borrow Through an LLC or Entity
Many investors prefer to borrow through an LLC or corporation to keep their personal information private and protect their other assets. This helps shield their personal assets in case something goes wrong with the property. Conventional loans can only be taken out in an individual’s name, but DSCR loans allow you to borrow through an LLC or other business entity.
DSCR Lenders Are More Flexible on Property Limits
With conventional loans, even if an investor can afford to take on several mortgages, they can only get loans for up to ten properties. Most DSCR lenders don’t have a set limit, instead looking at the total amount of credit the investor is exposed to and using common-sense guidelines.
Require Less Documentation
Conventional mortgage loans usually require a lot of paperwork, including pay stubs, bank statements, and tax returns. Underwriters thoroughly review your financial history, which can take time. Missing documents can cause delays. DSCR loans, however, focus more on the property’s value and rental income, as well as your credit. As a result, there is less paperwork needed. Most DSCR lenders won’t ask for proof of income, employment, or assets (except for liquid reserves).
While it is best to discuss your specific scenario with one of our Loan Agents, here are some general requirements:
Minimum Credit Score
We don't have a minimum credit score, even though most DSCR lenders only go as low as 660 or 680. Most lenders also have a minimum tradeline requirement (amount and duration) reporting on your credit report, and also will consider if you have significant credit events, such as bankruptcies, foreclosures, and recent mortgage lates. Some lenders also require charge offs and collections be paid off prior to closing, although we do not require this.
If you don't meet the credit requirements for a DSCR loan, you may be a better fit for our Hard Money loan option.
Minimum Down Payment or Equity
We can go as high as 85% LTV on purchase loans, and 80% LTV on refinance, depending on the property type, credit and DSCR ratio.
Minimum Property Value
We have a minimum property value of $100k. If you own multiple investment properties worth over $50k, ask us about our blanket loan option.
Minimum Loan Amount
Most lenders have a minimum loan amount of $100k. We can go as low as $75k.
While this may seem straightforward, it can vary between lenders. Some lenders offer DSCR loan programs for vacation rentals, while others do not. Other variations include whether the lender finances warrantable versus non-warrantable condos, or multi-family homes versus single-family properties. Be sure to confirm that your specific property type is eligible for financing with the lender you choose.
At JCREIG Capital Funding, all property types are considered, including 1-4 residential, 5+ multifamily, commercial, and mixed use. The only property types we try and stay away from is special use commercial property. This is going to be commercial property that serves a special narrow purpose or can only be used by a specific type of business, such as gas stations and churches.
We have options from no prepayment penalty to 5 years. The longer the prepayment penalty, generally, the lower the rate and cost will be. The pre-payment penalty may vary based on the loan, so it's important to get those exact details from your loan agent.
A rate buydown in a mortgage allows a borrower to lower their interest rate by paying additional upfront costs, known as discount points, at closing. This can reduce monthly mortgage payments for a certain period or the entire loan term, depending on the type of buydown. Our suggestion is to speak with a Loan Agent directly about your scenario to see if a rate buydown makes sense, and which option makes the most sense, as it varies by each borrower's individual situation.
Types of Rate Buydowns:
1. Permanent Buydown: The borrower pays discount points to secure a lower interest rate for the life of the loan. Typically, each discount point (1% of the loan amount) reduces the rate by around 0.25%, but this varies by lender. Example: On a $300,000 loan, paying $6,000 (2 points) might reduce the rate from 7% to 6.5%.
2. Temporary Buydown (e.g., 2-1 or 3-2-1 Buydown): The borrower (or sometimes the seller or lender) pays a lump sum to temporarily reduce the interest rate for the first few years.
Common structures:
2-1 Buydown: Rate is 2% lower in year 1, 1% lower in year 2, and reverts to the original rate in year 3.
3-2-1 Buydown: Rate is 3% lower in year 1, 2% in year 2, 1% in year 3, then reverts.Often used by sellers to attract buyers or lenders to help affordability.
Pros and Cons of a Rate Buydown:
Pros: Lower initial mortgage paymentsCan make homeownership more affordable early onCan be beneficial if planning to refinance before the full rate applies (in temporary buydowns) Helps buyers qualify for a loan with a lower debt-to-income (DTI) ratio
Cons: Requires higher upfront cash If selling or refinancing early, upfront costs may not be recoupedCan be complex, especially temporary buydowns
Good news! Your property is still eligible if it is vacant, as long as it is still in a livable condition. This applies to purchases, refis, and cash outs. Most lenders require the property to be tenant occupied for a refinance. We do not! Reach out to your Loan Agent to see if there will be any additional requirements or limitations based on your scenario.
How is the DSCR calculated on a vacant property?
We use a specific type of form ordered with our appraisal reports where the appraiser will also provide a report with a projection of the monthly rental income, based on comparable rental properties in your area.
Yes! We allow short term rental income for our DSCR loans. Reach out to your Loan Agent for more details.
When comparing DSCR loan lenders, it’s important to consider the following:
What are the lender’s rates and fees?
It’s essential to understand the full cost of the loan upfront. You don’t want to be caught by surprise with unexpected expenses at closing. Most lenders charge an origination fee, along with other administrative fees like underwriting and documentation fees. Additionally, be aware of any prepayment penalties, especially if you plan to sell the property soon after purchasing it. Most importantly, make sure you are dealing with a reputable lender.
Is the lender experienced in working with investors?
In our opinion, this is the most important factor to consider. Lenders who specialize in working with investors tend to have a better understanding of the unique needs and challenges of investment financing. As the market for DSCR loans grows, it’s helpful to look for lenders with experience. Here are some questions to ask potential lenders:
- How many DSCR loans have they closed?
- How long have they been offering DSCR loans?
- Do they have a dedicated team that processes and underwrites DSCR loans?
- What are their property insurance requirements (they may differ for investment properties versus owner-occupied properties)?
- o they have prepayment penalties or rate buy-down options? Keep in mind that most DSCR loans include a prepayment penalty.
- Do they allow financing through an LLC or corporate entity?
Choosing a lender who has a solid track record and a specialized focus on real estate investors can make a big difference in the loan process.
There’s many reasons clients prefer DSCR loans vs. Conventional financing. First, DSCR loans do not take into account your other debts beyond the PITI payment of your loan. So, if you are self employed and report very little income, using a DSCR loan may be the best option.
Secondly, a DSCR loan does not report to credit, and therefore may not affect your future ability to qualify for additional properties.
Another benefit is that a DSCR loan allows you to vest in an LLC , whereas FNMA does not allow that on traditional financing.
Rates and leverage are dependent on risk. Risk is measured on flipping experience, credit, loan details, and loan term. You are able to set your loan term from 6-18 months. The rate and allowable max leverages will be determined on a number of factors including credit profile, experience and project size. Get started today to find out where you qualify. It just takes a couple minutes to submit your application!
Great- there is no pre-payment penalty, so you can pay-off the loan at anytime, without incurring additional fees. Your interest is simply calculated by the days you hold the loan before payoff.
Generally, yes. However, approval of an extension is considered with a few factors including but not limited to, on-time payment history, project status, etc.
For Bridge and Fix and Flip loans, we can look at exceptions down to 600 with compensating factors such as experience and additional guarantors.
Yes! We love helping first-time flippers. In fact, many of our expert flippers started their first flip financing with us. With 5k+ loans closed, we are here to help you with any questions you have including budget reviews, property valuations, and profitability analysis. Our goal is to make your flip a financial success for you!
Our technology and our experience. With 5,000+ loans closed since 2017, and our average employee having 8+ years in the industry, we’ve got you covered to close fast!
Our draws are generally reimbursed in 3-5 business days from the time of request. If you are using our draw app, you may receive them in as little as 24 hours. To make sure your draws are on time, you must be current on your loan. We pay draws on a reimbursement basis only based on your rehab budget and work completed on the property, so no receipts are necessary!
Yes, we love and protect our Brokers! To get setup, simply submit a scenario on our website or give us a call.
The top 3 factors that affect the DSCR rate include the actual Debt Service Coverage Ratio (DSCR), Loan-to-Value, and your FICO (credit score).
The higher the DSCR is on a property, the lender is able to forecast a lower risk for lending the capital since the property may be positively cash-flowing and the investor is able to pay the monthly loan payments. Loan-to-Value, or LTV, refers to the loan amount as it relates to the actual value of the property.
Typically, DSCR loans will never exceed 80% LTV. That means that the borrower needs to bring about 20% +closing costs as a down payment for the loan. The lower the LTV, the less risk for the lender, hence a better rate.
Finally, your credit score is still a factor when determining the rate. Lenders use the score and it affects the final rate for your DSCR loan.