Hard money loans are a popular financing method among real estate investors. There are various factors that make these loans well suited for real estate projects like fix-and-flip investments.
A hard money loan is a loan that's given to a borrower based on the value of the piece of real estate they're looking to acquire. That makes them different from standard loans handed out by banks, where it's the borrower's income and credit score that determines the loan amount they can qualify for.
Hard money lenders are usually private investors rather than banks. They are less concerned about your financial situation than they are about the value of your property. If you're not able to repay the loan for whatever reason, they seize the property that serves as collateral and sell it themselves to make their money back.
The loan period for hard money loan is usually a lot shorter than other kinds of loans. They usually have a term of about a year, but can go up to five years. Some hard money loans involve paying a lump sum at the end of the term along with monthly payments.
Pros of Hard Money Loans
The main reason investors choose hard money loans is because of how quickly they get approved. Since lenders aren't too concerned with your financial situation, there's less legwork that needs to be done. You can raise financing swiftly with hard money loans as a result.
These kinds of loans are an option for people who may not have a great credit score or stable income history. The rules for underwriting hard money loans are less strict so the financial profile of the borrower isn't as important. The industry consists mostly of private investors so you're generally not dealing with a corporate entity with strict guidelines.
Another advantage of getting a hard money loan is that the terms tend to be more flexible than those laid down by banks. This is especially true in the case of repayment periods; borrowers can choose to repay the loan within anywhere between half a year and five years in most cases.
Cons of Hard Money Loans
The interest rate on hard money loans is usually a lot higher than other kinds of loans. The rates on such loans start at around 12%, which is higher than the starting rates for traditional loans. For borrowers, that means having to pay much higher installments each month. It's important that you factor the repayment schedule into your budget while applying for a loan.
Borrowers looking for a hard money loan should be careful to avoid some of the unethical businesses that operate in the industry. Such players exist because there's very little government oversight in this niche. Take your time to examine the reputation of each hard money lender in your area before making a choice.
Best Hard Money Lenders in Arizona
Clear Mortgage is a hard money lender based out of Tempe, Arizona. They offer a number of different kinds of hard money loans including those for time-sensitive real estate investments and funds for bank-owned property sales.
Axis Property Advisors
The typical hard money loans provided by Axis Property Advisors goes up to 70% of the price of a property. Higher loan-to-value (LTV) options are available if you're able to provide additional collateral. The interest rates range from 10.99% to 16.99%.
BradLoans' fix-and-flip investor financing loans have an LTV of up to 70% at an interest rate of 14.99%. Borrowers can apply for a hard money loan using an online application form. The company is based out of Scottsdale and was founded by Brad Gilbertson.
LM2 Investment Group
This Arizona hard money lender provides financing to qualifying borrowers in as little as 24 hours. In fact, it's common for LM2 Investment Group to fund trustee sale purchases within a day's time after obtaining the necessary documentation.
Sir Mortgage & Finance
Sir Mortgage & Finance is headquartered Phoenix. The company provides financing ranging from $50,000 to $10 million. The loans are provided at a maximum LTV of 60% with interest rates typically ranging from 9% to 14%.
Most seasoned property investors and flippers work with local real estate agents to identify reliable private lenders and investment opportunities. Doing so saves you the time and effort that goes into researching your options and helps identify cost-saving opportunities along the way.
Clever Partner Agents are local area experts who assist buyers looking to raise funds for real estate investment projects and house flips. We can connect you to a top agent in your area for a no-obligation consultation.