JCREIG Capital Funding is a direct bridge and hard money lender in Florida with many years of experience in hard money lending. We are passionate about helping real estate investors, wholesalers, contractors, and small business owners efficiently and swiftly finance their investment goals as they pursue the opportunities that exist in today’s real estate market.
What Is a Hard Money Loan?
A hard money loan can provide you with cold, hard cash quickly — typically in just a few days. These loans are secured by a physical asset (like real estate) that the lender can repossess if you default on your payments. While hard money loans can be a quick way to buy a property, they come with risks, including higher interest rates and shorter repayment terms. Learn more about hard money loans below, including how they work and what to consider before borrowing one.
Definition of a Hard Money Loan
A hard money loan is a unique loan you obtain using a “hard” asset, such as real estate. In other terms, a hard money loan is simply a short-term loan that uses tangible property as collateral. The funds in hard money loans get secured by real property instead of the borrower’s creditworthiness.
Hard money loans are alternatively known as bridge loans, asset-based loans, or short-term asset-backed bridge loans. Hard money loans are usually in the real estate industry due to their speed, flexibility, and convenience.
There are three main uses of hard money loans in the real estate industry:
- Real estate investors also use hard money loans for flipping houses. House flipping is when a real estate expert purchases a property and holds onto it for a short time, then sells it with the hopes of making a profit.
- Hard money loans are used as a quick home financing option before a buyer secures a traditional mortgage.
- They are used to finance commercial or rental properties in the absence of conventional financing.
Hard Money Loans Explained
Such loans are generally used in the real estate industry by house flippers, real estate investors, and real estate developers. The asset being purchased acts as collateral, which reduces the risk for both the lender and the borrower.
Conventional lenders such as credit unions, banks, and other financial institutions don’t offer hard money loans, so private investors often fund them. Hard money lenders essentially serve the same purpose as banks but with a different approval process and loan terms.
Hard money loans are popular in real estate because they are quicker and easier to obtain than traditional loans. Financial institutions often have a thorough process to evaluate your creditworthiness, and this takes time. However, hard money loans can be instant since they are based on the value of the collateral securing the loan rather than your credit scores.
How a hard money loan works
Hard money loans have the same purpose as a regular mortgage — to finance a real estate purchase. But that’s where the similarities end for the most part. A key difference is that individuals, investment companies and other private businesses offer hard money loans instead of traditional lenders. In addition, hard money lenders such as JCREIG Capital Funding, who generally have a less stringent approval process than standard home loans.
Hard money loans most commonly use real estate as collateral, but other hard assets — like vehicles, equipment, machinery and precious metals — could also secure the loan. The typical terms for hard money loans range from six to 24 months.
In order to offer a fast closing time, hard money lenders typically don’t look into your credit history. They mainly base the loan amount on the collateral’s value. You’ll also likely be limited to a 65% to 75% loan-to-value (LTV) ratio — the lender wants to limit its risk in case you default.
What are the Points and Interest Rates on Hard Money?
Hard money lenders usually charge fees to borrowers for providing the loan. These fees are known as “points.” These points are generally equal to one percentage point of the hard money loan but can range from 2% to 4% of the loaned amount. Interest rates on a hard money loan may vary greatly depending on the lender, the region, and the deal. You can expect interest rates of anywhere from 10% to 15%. The average percentage for hard money loans in 2020 was 11.25%.
While most hard money lenders offer loans with a fixed interest rate, you may be able to negotiate a floating rate. The terms of hard money loans are generally around 12 months; however, hard money lenders can extend the loan term to longer terms of 2-5 years. You wouldn’t want to keep hard money loans around for a long time, though, since the interest rates are typically relatively high. The rates for hard money loans are generally higher, and the terms are much shorter than traditional loans.
Contact hard money lenders for detailed information about interest rates and points information in Los Angeles and Orange County.
What is BRRRR?
Besides being a noise you make when you’re cold, BRRRR stands for “buy, renovate, rent, refinance and repeat” — it’s an acronym and method used by house flippers. If you don’t want to wait the six weeks or so that it takes to close on a mortgage refinance, you could instead use a hard money loan to help you complete the BRRRR process.
What are the Points and Interest Rates on Hard Money?
Hard money lenders usually charge fees to borrowers for providing the loan. These fees are known as “points.” These points are generally equal to one percentage point of the hard money loan but can range from 2% to 4% of the loaned amount. Interest rates on a hard money loan may vary greatly depending on the lender, the region, and the deal. You can expect interest rates of anywhere from 10% to 15%. The average percentage for hard money loans in 2020 was 11.25%.
While most hard money lenders offer loans with a fixed interest rate, you may be able to negotiate a floating rate. The terms of hard money loans are generally around 12 months; however, hard money lenders can extend the loan term to longer terms of 2-5 years. You wouldn’t want to keep hard money loans around for a long time, though, since the interest rates are typically relatively high. The rates for hard money loans are generally higher, and the terms are much shorter than traditional loans.
Contact hard money lenders for detailed information about interest rates and points information in West Palm Beach and Palm Beach County.
What are the Borrower Requirements for Hard Money Loans?
Are you planning on investing in real estate with hard money loans? Private individuals and companies offer these loans, so the loan terms tend to differ from one lender to another. Lenders usually take precautionary measures when giving loans to first-time borrowers. You may have to submit additional documents and information that veteran borrowers don’t need to provide.
The hard money lender must also consider your plan for the property. As the borrower, you need to provide a good plan on how you’re planning to pay off the loan ultimately. It usually involves renovating the property and selling it or securing long-term financing later on.
Loan to Value Ratios of Hard Money Loans
The ratio of a loan divided by the value of a property determines the loan amount the hard money lender can lend. This amount is known as the loan to value (LTV). Most hard money lenders lend up to 60 – 75% of the property’s current value, so you’ll require a 25% to 40% down payment to secure the loan.
Some hard money lenders even lend based on the after-repair value (ARV). The after-repair value is the estimated worth of the asset after the borrower has fixed the property. Using the ARV increases the risk for the lender, however, since the amount of capital they use increases while the amount invested by the borrower decreases. To compensate for the risk, hard money lenders may charge a higher interest rate.
Loans based on the after repair value (ARV) have a much higher risk involved, so the points and interest rate will be much higher.
Get a quote for your next hard money loan from the leading Florida hard money lender, JCREIG Capital Funding.
Do You Need a Hard Money Loan?
To answer this, we, first of all, have to understand the purpose of hard money loans in the first place. Why would you need an asset-backed bridge loan? The main reason for these loans is to secure a property to improve and ultimately sell it later for a profit. House flippers acquire properties, renovate them, sell them as soon as possible, then pay off the loan.
Why do fix and flip investors opt for hard money loans over conventional loans? When borrowing a hard money loan, the lender focuses entirely on the deal instead of your bank statements, income documentation, and tax returns. Therefore, they can help you fund projects quickly and efficiently when you need to, even within a week. Compare that to the four to six it takes to get a bank loan funded.
The ability to acquire funding at a much faster rate than a bank loan is a massive advantage for a real estate investor. That’s helpful in hot markets when properties get many competing bids.
While hard money lending makes the most sense for short-term loans, it may also come in handy when financial institutions have rejected you for a conventional loan. Hard money lenders are willing to overlook foreclosures, credit issues, and all other issues as long as you have enough equity invested in the property.
Is a hard money loan right for you?
If you have poor credit or need a large sum of money quickly, a hard money loan could help. Be aware, though, that it’s a more expensive way to get the cash you need.
Here are some of the types of borrowers who tend to consider hard money loans:
→ Borrowers who don’t qualify for traditional financing
→ House flippers (people buying fixer-uppers to renovate and resell them)
→ Real estate investors
JCREIG Capital Funding
Looking to finance your next investment project?
JCREIG Capital Funding is a hard money lender that can help you fund your loan.
We have over a decade of experience, and have funded hundreds of millions of dollars in private money loans for commercial and residential real estate projects across The Sunshine State.
Reach out to us @ 561-303-0334 if you require funding or have any questions.
FAQs
Hard money loans are not for every situation, but they can be a valuable tool in certain circumstances, especially for real estate investors or business owners facing time-sensitive financial needs.
- Flipping a Property: Real estate investors who buy homes to renovate and resell (often referred to as “flippers”) are among the most common users of hard money loans. These investors often need quick access to funds to purchase and improve properties before selling them for a profit. The fast approval and short-term loan nature of hard money loans make them ideal for this type of project.
- Buying a Foreclosure: Foreclosure properties are another area where hard money loans shine. These properties often need to be bought quickly at auction, making traditional mortgage approval times impractical. Hard money loans provide the fast cash necessary to secure these deals.
- Bridge Loans: If you’re waiting on long-term financing (like a traditional mortgage or refinancing) but need immediate funds, hard money loans can be used as a bridge loan. This allows you to purchase or renovate a property while you wait for your permanent financing to be finalized.
- Bad Credit or Financial Challenges: Borrowers with poor credit scores or who lack the financial history to qualify for a traditional mortgage may still qualify for a hard money loan. Since these loans focus on the property value, your credit score and financial past won’t weigh as heavily in the approval process.
Hard money loans tend to attract a specific group of borrowers who need fast access to cash and are willing to accept higher costs and risks for quicker funding.
- Real estate investors — who buy properties to renovate or resell, or who need short-term financing for other types of investment projects, are among the most common users of hard money loans. These loans are perfect for investors who need to act quickly and can repay the loan once the property is sold or refinanced.
- House flippers — who buy distressed properties, renovate them, and resell for a profit—are particularly drawn to hard money loans because of the speed at which they can access funds. For flippers, timing is everything, and waiting for traditional loan approval isn’t always an option.
- Business owners — who own commercial real estate or need to renovate or purchase new properties may also turn to hard money loans. These loans can be used to quickly secure capital for renovations, expansions, or other short-term needs.
- Borrowers with poor credit — who don’t qualify for traditional loans often find hard money loans useful since they are asset-based. As long as the property has value, the borrower can often secure a hard money loan even if their creditworthiness is lacking.
If you’re considering a hard money loan, you’ll need a reputable, trustworthy lender — especially since these loans come with higher interest rates and fees. Here’s how to find one:
- Research Reputable Lenders
- Ask About Fees and Terms
- Compare Multiple Offers
Hard money loans are a fast, flexible financing option for real estate investors or business owners who need short-term funding. While they come with higher interest rates and fees, the speed and flexibility they offer can make them a valuable tool in the right circumstances. However, hard money loans aren’t without their risks, so it’s important to weigh the pros and cons carefully before committing.
If you’re considering a hard money loan or need help finding the right financing solution, JCREIG Capital Funding can help. We offer customized funding options designed to meet your business and real estate needs. Apply for financing today!
