Everything you need to know about private lending for real estate.
A hard money loan is a short-term, asset-backed loan used by real estate investors. Unlike conventional mortgages, hard money loans are funded by private lenders and focus on the property's value rather than the borrower's income or credit history.
Most hard money loans close in 7 to 15 days, with some closing in as few as 10 days. This is significantly faster than conventional loans, which typically take 30 to 60 days.
Most hard money lenders require a minimum credit score of 600 to 650, but the property and deal structure are more important than your credit score. Some lenders work with borrowers who have lower scores if the deal is strong.
No. Hard money loans do not require W2s, tax returns, pay stubs, or debt-to-income calculations. Qualification is based on the property and deal structure, not personal income documentation.
Interest rates for hard money loans typically range from 9% to 14%, with origination fees (points) of 1 to 3 points. Rates depend on the loan-to-value ratio, property type, borrower experience, and market conditions.
LTV stands for Loan-to-Value ratio, which compares the loan amount to the property's value. Most hard money lenders offer up to 65% to 90% LTV on the purchase price, with some also funding 100% of the rehab budget.
A DSCR (Debt Service Coverage Ratio) loan qualifies borrowers based on the property's rental income rather than personal income. If the property's rent covers the mortgage payment (typically at a 1.0x to 1.25x ratio), you can qualify regardless of personal income.
A no-seasoning refinance allows you to refinance a property immediately after completing renovations, without the traditional 6 to 12 month waiting period. This is especially valuable for BRRRR investors who want to recycle capital quickly into their next deal.
A bridge-to-sell loan lets you cash out up to 75% of a property's value while it is listed for sale. This prevents fire sales and lets you deploy capital into new deals while waiting for the property to sell at full market price.
A mid-construction refinance provides new financing for construction projects that have stalled or need a new lending partner. The property must be weathertight with core systems ready and no mechanic's liens. It can finance up to 100% of remaining construction costs.
LTV (Loan-to-Value) compares the loan amount to the property's current or after-repair value. LTC (Loan-to-Cost) compares the loan to the total project cost including purchase and renovation. New construction loans typically use LTC, while rehab and bridge loans use LTV or ARV-based calculations.
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's an investment strategy where you purchase a distressed property, renovate it, place a tenant, refinance into a long-term loan to recover your capital, then use that capital for the next deal.
The 70% rule states that an investor should pay no more than 70% of the after-repair value (ARV) minus the cost of repairs. For example, if a property has an ARV of $300,000 and needs $50,000 in repairs, the maximum offer should be ($300,000 x 70%) - $50,000 = $160,000.
The Debt Service Coverage Ratio is calculated by dividing the property's annual net operating income (NOI) by its annual debt service (mortgage payments). A DSCR of 1.25x means the property generates 25% more income than needed to cover the loan payments. Most DSCR lenders require a minimum of 1.0x to 1.25x.
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