Hard money loans are short-term, nonconforming mortgages that do not come from traditional lenders but rather individuals or private companies. Also known as a "Construction Loan".
Borrowers may turn to hard money when they've been denied a loan through more conventional means and want something quickly; alternatively, it can be an asset protection device for those who know they will never qualify financially with their current employers (or family).
A "hard" part about these types of borrowing is typically backed by some type tangible thing - like real estate!
Why not a Conventional Loan?
Most (not all) Fix & Flip properties are not "move-in-ready". Meaning these properties would not pass inspection to qualify for Conventional, FHA, or VA lending.
Flipping A House Using Hard Money Lending
Flipping houses is all about making money. But, there are ways to do it faster - like with hard money loans!
Hard-money lenders offer quick cash for buying property in need of repair or renovation and then selling them at a profit; these types of projects typically happen fairly quickly which means that professional flippers often prefer this kind financing over other more traditional methods because they don't have time on their side when trying get things done fast enough (and still maintain quality control). Additionally, since house flippers generally try sell homes less than twelve months after purchase – meaning no long term mortgage needed.
Standard Rates & Terms
Each Hard Money Lender offers different rates and terms which can often be negotiated per deal and situation. Rates below are currently being offered by DoBackflip.com.
Pros & Cons of Hard Money
Pros
As mentioned, some of the pros of using Hard Money include:
1-5 Day Standard Approval Process
Approval based on experience/deal quality, not always credit worthiness
Flexible Rates
Cons
Some of the most common drawbacks include:
Higher Interest Rates
Large Down Payments
Less time to repay (9-12 month term)
May need track record of Fix & Flip success
Hard money loans can be more expensive depending on the preferred LTV ratio of lender. A hard-lending institution might only finance 70 - 80% (or less) into your property, which means you’ll likely have to bring a hefty down payment if they are involved in financing it all upfront.
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