Frequently Asked Questions

Hard money loans are a specific type of asset-based loans that are secured by real estate collateral. Hard money
loans are generally given through private investors or companies.

The main individuals who utilize hard money loans are real estate investors, developers, fix and flippers, and buy and hold investors.  The ability for hard money lenders to fund much faster than a traditional bank helps those who are trying to acquire a property with competing bids, and sellers who want a quick close. In many situations, hard money lenders can issue funds in as little as 10 business days, while traditional banks have a wait time of 30-50 days for funding.

Interest rates charged by hard money lenders can vary lender to lender and depend on the location of the property.  For example, lenders in California are much more competitive with their rates and will usually offer lower interest rates compared to other areas of the US.

Overall, interest rates for the lenders in Bridge Loan Network’s Marketplace range between 5%-15% depending on the lender’s perceived risk of the loan and the location of the property. Due to the risk involved, hard money lenders have higher rates than traditional lenders.

Hard money loans are generally all short-term loans, ranging from 6 to 18 months.  Depending on the specific lender you choose, you can also find long-term loans in the 3+ year range to 30-year loans.  Typically though, the investors who are using hard money are using them for the quick turnaround times and the ability to acquire, renovate, and sell a home all in a couple months.  For investors who are looking to buy and hold a property, these short term loans are considered bridge loans, where investors refinance the property with a traditional lender who have longer terms.

Loan-to-Value ratio, or LTV, is the amount of money hard money lenders can lend on a specific property. The LTV is determined by the ratio of the loan amount divided by the value of the property.  Most hard money lenders can lend up to 60% to 75% of the property’s current value. Other lenders lend based off the After-Repair-Value (ARV) of the property. The After-Repair-Value of a property is the appraised value of the property once repairs are completed. Some lenders can offer up to 55% to 75% of the ARV.

Lenders typically require Title Policy, Insurance, and Appraisal fees which are paid by the borrower, and some lenders may have application fees.  There are currently no lenders in the Bridge Loan Network Marketplace who charge any upfront fees during the pre-approval and approval process such as an application fee. Though, the borrower is responsible for third-party fees such as appraisals or project feasibility studies.

Most hard money lenders do run credit checks, but mostly to look for the borrower’s ability to repay the loan. Typically, credit score requirements depend on the exit strategy of the investment. If the borrower intends to buy and hold rather than fix and flip the property, lenders will pay closer attention to FICO scores.  Lenders may also review the borrower’s history to determine if there is a repeating pattern of poor financial management or if an isolated incident affected the individual’s credit.

After Repair Value (ARV) – This is an estimate, based on comparable properties near the subject property and the value of the home after it has been renovated using the rehab list and budget.

Appraisal – A professional assessment to determine the estimated current market value of the property as well as the worth after the renovations are completed.

As-is Value – The value of a property as it exists now, without any renovations or improvements.

Bridge Loan – Short term financing which bridges the gap until another financing, typically traditional financing, is acquired.

Collateral – This is a property or other assets that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Hard Money Lending is asset/ collateral-based lending.

Commercial Use – A property that is only for business investing purposes and will not have the owner of the property living in it.

Default – Failure to comply with the terms of an agreed-upon loan, including timely repayment.

Distressed Properties – Properties that are in extremely poor condition (possibly even in foreclosure). These properties are great contenders for fix and flip investments.

Draw Schedule – A -re-payment plan for construction or renovation projects. Typically, an inspector will determine the scope of work completed using the rehab list, and the lender will distribute the funds based on that value of the work completed.

Exit Strategy – How the borrower plans to pay off the loan. It’s also important to the lender that the project will also turn a profit. Examples of exit strategies include selling the property and refinancing traditionally.

Fixed-Rate Loan – A fixed-rate loan is a loan in which the interest rate or scheduled principal and interest payment amount does not change throughout the course of the loan.

Guarantor – A person who agrees to take responsibility the loan and for any remaining owed amounts on a loan should there be any.

Hard Money Lender – Hard money loans are a specific type of asset-based loans that are secured by real estate collateral. Hard money loans are generally given through private investors or companies.

Interest Rate – The amount (a percentage) that a borrower has agreed to pay a lender as the price of borrowing money. Typical interest rates for Hard Money Loans are between six and thirteen percent.

Loan Points – An origination fee. One point is equal to one percent of the principal loan amount. Typically, Hard Money Lenders earn between 1 and 3 points, and brokers can match the lender with points.

Loan-to-Value Ratio (LYV) – The loan amount for the property divided by the appraised market value of the property.

Mixed Use – A property that has both residential and commercial aspects in it.

Prepayment Penalty – A fee added to the loan for paying off the loan before the agreed end date.

REO (Real Estate Owned) – A process where ownership of the property was transferred from an original owner to the owner’s lender through the foreclosure process.

Referral Fee – A fee paid by one Private Money Lender to another for referred business.    Referral fees are common for commercial loan transactions between hard money lenders, brokers and investors.

Refinance – Replacing an existing loan with a new one. Typically, investors refinance to get a lower interest rate on their loan and/or to leverage real estate value for cash to invest again.

Return on Investment (ROI) – A measure used to calculate the success of an investment. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The ROI is expressed as a percentage or a ratio.

Scope of Work – This is an outline of all the renovations scheduled to be completed before the house is sold, as well as their anticipated costs. Typically, this is considered with the renovation list when applying to a Hard Money Lender.

Let's Start Talking About Your Project

Apply now