Not everyone can qualify for a conventional loan. In this case, many instead turn to a hard money loan. You may find that not only do you qualify, but you have more options and flexibility. But, at what cost?
If you happen to land on the HGTV channel, it's inevitable you'll get sucked into watching at least several episodes or so of “Property Brothers” or “Flip or Flop” and frankly, by the end you'll undoubtedly want to grab your tools and head out to find your own fixer upper to flip.
But before you start half-hazardly tearing down walls, among the myriad of factors to consider, you first need financing. And most house flippers, along with real estate developers, utilize hard money loans, also sometimes referred to as bridge loans, to fund their real estate investment projects.
What Is a Hard Money Loan?
A hard money loan is a short-term loan real estate investors use to finance a project — whether it's flipping a single-family home, a large apartment complex, office buildings, or retail space, investors typically turn around the property quickly to make a profit.
Unlike a traditional loan where banks and lenders scrutinize your financial history, your credit score, income, and previous debts, a hard money loan, provided through private lenders, instead only uses the investor's investment property as collateral.
Hard money lenders don't care about your credit score or past history with foreclosures or debt. Rather, all they look at is the value of the property you want to invest in with many lenders simply considering the value of the property after repairs or the after repair value (ARV).
Certainly a hard money loan is a great option for investors with a less-than-stellar credit score. Additionally, many investors look to hard money loans because of their speed and flexibility.
With traditional loans, lenders and banks can take weeks or months to approve your loan. But with hard money loans, because they don't scour through every detail of your financial history, loan approval is much faster and you can receive funds within a week or even days.
This short approval timeframe can be imperative for investors who need to jump on an opportunity quickly before they lose it to someone else.
In terms of flexibility, hard money loans sweep the floor with traditional loans. Because you're dealing with a private lender over a giant corporate bank, you have more freedom to negotiate the terms of the loan.
For instance, you may be able to talk down certain fees and modify the repayment schedule so it better meets your needs. Your hard money lender may even allow you to use other personal assets like a retirement fund or your own home as collateral instead of the investment property.
Unfortunately, it can't all be good news. One of the main sticking points with hard money loans is their expense. Because hard money lenders are taking a bigger risk on financing your investment, interest rates for hard money loans are significantly higher than a traditional loan.
Typically, interest rates can be anywhere from 10% to 15%. In Baltimore, you'll find interest rates, on average, at 10.9% with a 4.0 point origination charge though rates will vary depending on your lender the riskiness of your investment.
Loan lengths usually last around 12 months and with such high interest rates you generally don't want the loan to extend much longer. Expect to pay interest monthly and when the loan term is up, you'll be responsible for paying the whole principal.
Be sure to discuss with your lender terms for repayment as, traditionally, hard money loans have a shorter repayment period. This timeline can be crucial as you'll want your property to have made a profit before the payment is due.
Finding the Right Hard Money Lender
The next step is finding the right hard money lender that fits your specific situation. Many lenders specialize in only certain types of property so you'll want to shop around to make sure the lender is well-versed in your particular kind of real estate investment.
To help you get started here are the five best hard money lenders in Baltimore.
The 5 Best Hard Money Lenders in Baltimore
1. ACC Mortgage
Since 1999, ACC Mortgage has handed out over a 1,000 loans on a multitude of properties from multifamily, apartments, commercial, retail, hotels, land and more. Loan rates start at 5.5% with flexible terms, a LTV (loan to value) up to 80%, with a required minimum credit score of 500.
2. Trius Lending Partners
Trius Lending Partners provides loans for commercial properties, property flips, new construction, and rehab projects, to name a few. They offer one-year loan terms with rates from 12% to 15%, a maximum LTV of 80%, and no minimum credit score.
3. Dominion Financial
Highly rated by the BBB, Dominion Financial offers loans for fix and flips, single-family homes, rehab loans, construction loans, and more. You can borrow up to $2 million with a 90% LTV and receive your loan in only five days.
Rates vary depending on your project and you should expect to pay 10% down with additional fees including origination fees and closing costs.
4. Maryland Private Mortgage
Maryland Private Mortgage has worked on over 1,000 projects since their start in 2001 with a quick approval process of only seven days. They fund rehab projects and fix and flip properties working with investors of all experience levels.
Loan rates range from 9.95% to 11.95% with a standard 12 month loan. No minimum credit score is required and they will lend up to 70% LTV.
5. PSG Lending
PSG Lending specializes in rehab and renovation loans, bridge loans, construction loans, and land development with loan financing ranging from $150,000 to $10 million. With PSG you can have loan approval within just seven days with an LTV up to 70% and between 9% and 12% interest rates.
Work with Clever
No matter the size of your investment project or your real estate investing experience, you'll always want to first connect with an experienced, local real estate agent who can help you find that great investment opportunity and help you assess all your financing options.
So before you begin your HGTV house flipping enterprise, partner with a Clever Partner Agent who can find additional cost saving opportunities and the right property that fits within your budget requirements.
And when you work with a Partner Agent to buy your fixer upper, you may be eligible for Clever Cash Back where you can get up to 0.5% money back after the sale is final, depending on the state you're in and your home's value. Get in touch with Clever to connect with a top Partner Agent in Baltimore with no obligation.