Generally considered a higher risk type of loan, a hard money loan can be used to purchase or refinance a property for both individuals and corporations. With considerable differences from a traditional style loan, a hard money loan is an excellent option for those looking to sell and recoup their investment money fast.
If you’re new to the investment and banking world or are just looking for more information, then you’re in the right spot. Below we will cover what you need to know about the average interest rate on a hard money loan.
What Exactly Is a Hard Money Loan?
As a type of bridge loan, a hard money loan can be used for several reasons. They can be used to buy or refinance a property as well as renovations and home improvements. Have you ever heard of house flippers? They are known to take advantage of this type of loan often. Banks and other traditional lenders do not usually issue a hard money loan. Instead, hard money loans are used by private companies such as Titan Funding.
A hard money loan often is short term, between three and 36 months. This is because borrowers, such as yourself, aren’t looking to hold onto the property for an extended time. Since purchasing a home with the intention to resell promptly can be risky, a hard money loan often has a higher interest rate. Loan amounts typically range between $100,000 to $5 million.
Hard Money Loan Interest Rates
Compared to other types of loans, a hard money interest loan can be expensive when it comes to interest rates. This is because this is not a long term loan and is intended to be paid off within a short amount of time. Perks of this are that you get a consistent rate instead of a variable rate offered with a traditional loan. The fixed-rate allows you to know ahead of time what the monthly payment will be and provides the benefit of no surprise rate changes.
A hard money loan interest rate tends to be about four to 10 percent higher than a traditional loan, but this is compared to a few years versus an average of 30 years. The total interest can amount to between 11 and 18 percent of the total loan amount, but this is, of course, a variable and not a definite amount. Rates are higher since the stakes of lending are higher.
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How Is a Hard Money Loan Different Than a Traditional Loan?
Hard money loans and traditional loans vary in many ways. A traditional loan is more likely to have a lower interest rate than a hard money loan, but traditional loans often require a higher down payment. Mortgages are also tailored to homes that will be occupied long-term, hence the long repayment term. While payments may be lower, they aren’t typically used for investment properties that will be sold or used to generate rental revenue.
Hard money loans are structured so that they can be paid off quickly for you to monetize the asset and clear the debt so you can move on and continue to your next investment. This is the reason that a hard money loan often can be quickly approved, while your conventional mortgage loan can take weeks or even months in some cases. They also can be approved without all of the strict policies and criteria you find with a conventional loan. If you can prove that you will be able to repay your debt, you may qualify for this type of loan.
Requirements For a Hard Money Loan
For a hard money loan to be beneficial, there are several requirements. These include:
- Real Estate Experience: Most of the time, a hard money loan lender is not as interested in your personal credit or financial history as they are your real estate experience. Your track record in investing will prove whether or not you’re a good candidate for this type of loan. If you can prove that you have flipped properties in the past with success, lenders will be more likely to offer you a hard money loan.
- Strong History in Personal Finance: If you don’t have a strong real estate investment history, a strong personal finance history is a requirement. Lenders will consider your credit score and finances to deem whether or not you’re a good candidate. If they believe you can pay back a hard money loan, you’ll be considered less risky. This may mean you could end up with higher rates than someone with a strong real estate success history.
- Low Purchase Prices: Many houses that are purchased, flipped, and then sold offer the bonus of an attractive purchase price. Though this usually means the property requires repair, a low purchase price gives you more room to fix the place up. After calculating potential costs, you and the lender can determine whether there’s a profit margin on the potential investment.
- Having Cash in Hand: Though having a hard money loan lender will cover the cost of the majority of repairs and the property’s purchase price, having cash in hand is a significant benefit and sometimes even necessary. You may be required to make a down payment to show you can repay the loan. It’s also a good idea to have some money available for any unforeseen repairs, such as a new roof or plumbing updates.
Whether you’re an individual seeking financing or a corporation, you can take advantage of a hard money loan in Boca Raton, Florida if you qualify. If you’re confident in your financial abilities and think that a hard money loan is a next step in your financial plan, reach out to the expert team here at Titan Funding.
Our team has decades of combined experience, and our banking professionals can help alleviate some of the stress and help you through the lending process. At Titan Funding, you generally find out whether or not you are approved within 48 hours. Loans are typically funded fast so you can get on the road to your next investment.