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Hard Money Loan FAQs:

When you need funding to put towards your next fix-and-flip or rental investment property, hard money loans are a convenient and fast way to access that capital. A hard money loan is a short-term loan secured by property rather than just your credit score and credit history. In this case, the property is your real estate investment.

Hard money loans can be beneficial because of the streamlined approach and the use of property as collateral versus credit. Compared to traditional loans, hard money loans have fewer qualifications, easier application processes, and faster approvals and closings. To help you in your research, here are the top 5 most frequent questions:

1. What is Hard Money Lending?

When trying to get a hard money loan, you will go through a hard money lender. These lenders will use criteria they're comfortable with when deciding who to lend to, most commonly using the value of the property to determine loan amounts and rates.

2. How Do Hard Money Loans Work?

In the hard money loan process, the lender provides the funding for your investment under a contract that outlines the borrowers amount, interest rate, term length of loans, and other various requirements. With hard money lending, the lender gets a lien against the real estate property which acts as security or collateral for the loan. The borrower makes regular payments and pays the loan off according to the agreed upon terms.

3. Pros of Hard Money Loans

Many veteran real estate investors use hard money loans to help fund their properties. The reason they choose hard money loans is because of a number of pros: speed, flexibility, and fast approval process. Hard money loans are known for how quick it is to apply and get funding, which is crucial to landing the best deal for a property. Hard money lending also offers flexibility for the borrower, especially those who cant traditional funding. They can use the property as collateral instead of their own credit, which means they don't have to worry about a lower credit score or higher personal debt-to-income ratio. Lastly, the likelihood of investors being approved is higher than traditional loans since the loan is based off of the property.

4. What is the Interest Rate on Hard Money Loans?

Interest rates for hard money loans will vary based on the lender but are typically higher than traditional loan rates. Private individuals will apply their own rates based on the market and other industry lenders. The current hard money rates are anywhere between 6 - 14% or more. Regardless of the higher interest rates, hard money loans are popular because they are a convenient, fast way, and sometimes the only option for accessing the capital needed for real estate investing.

5. What are Points on a Hard Money Loan?

Points to close on a hard money loan will also vary based on the lender. Right now, many lenders point rates fall between 2% and 10% of the loan amount. Lenders will base this percentage on the risk, equity, and experience of the borrower. Because of this number, its important to have a developed strategy for your investment property, especially if you're a beginner.

6. Are Hard Money Loans a Good Investment?

Hard money loans can be useful if you need funding fast for a fix-and-flip or rental property. Compared to traditional loans, you can use the property as collateral for the loan rather than relying just on your credit score or credit history. Hard money loans have fewer qualifications, an easier application process, and faster approvals and closings.

7. Is Hard Money Lending Illegal?

Hard money lending is not illegal. Hard money lenders are well-established and reputable lenders. It is a loan from a private lender or non-traditional lender that uses the asset as collateral for the loan.

8. Why are Hard Money Loans Risky?

Hard money loans can come with higher interest rates than traditional loans. Some private lenders will apply their own interest rates based on the market and other lenders in the industry. At CIVIC Financial Services, we have great rates for our hard money loans, starting at 4.25% for rental loans compared to the industry average of 10% - 18%.

9. Do Hard Money Loans Show Up on a Credit Report?

Most hard money loans like fix-and-flip loans will not show up on your credit report. Make sure to discuss the specifics of your loan with a lender to ensure this. The loan will typically appear on a background check or asset search.

Get Hard Money Loan Questions Answered at CIVIC

At CIVIC Financial Services, we are a private money lender specializing in the financing of non-owner occupied residential investment properties. We have many loan options for real estate investors who are looking to refinance, purchase a rental property, or fix and flip a house. If you're looking for more information about loans or are looking to apply, connect with one of our account executives today!