Hard money loans are short-term loans that help real estate investors when they need quick access to funds. Private lenders provide these loans to buyers looking to develop properties then sell them for a profit.
An investor usually goes to a hard money lender if they want to avoid the hassle of dealing with a conventional financial institution. Instead of using another asset as collateral, the private lender uses the property as collateral for the loan.
Other circumstances that might cause an investor to take a hard money loan include:
- A below-average credit score
- Avoiding financial institution red tape
- Limited earning history
Unlike conventional loans, hard money loans are calculated according to the value of the property. In most cases, they do not cover 100% of the property’s value, they cover 60-75% of the after repair value.
In Phoenix, hard money loans have a loan-to-value (LTV) ratio of about 78%. But each lender will be different.
Due to the nature and urgency of these loans, the interest rates are slightly higher. Hard money loans in Phoenix usually have an interest rate of up to 13%. But you can get lower rates, it all depends on the lender.
Here’s the good and the bad about hard money loans.
Conventional loans take a long time to get approved. And even then, you still have to provide paperwork to prove your ability to pay. But since hard money loans are anchored on property value, you can access a loan in days.
You do not have to prove your creditworthiness, which is why the loans are perfect for investors looking to get started in real estate. However, to protect themselves against default risk, some lenders will ask for a partial amount from the borrowers.
Few Qualification Requisites
To qualify for a hard money loan, you only need to have a good investment property. The lender will check the value of the property you want to invest in then advance you a percentage of its total value.
Hard money loans are not pegged on your previous credit scores or income history. This means you can diversify your real estate portfolio without having to jump through hoops for a loan. You can use the loans to invest in several properties at once.
If you find a reputable hard money lender to give you a loan, you can agree on financing and repayment terms. You can also negotiate a lower rate as the loan is short-term.
Getting a hard money loan is easy, repaying it isn’t as easy. Hard money loans attract high interest rates. However, considering the convenience, it’s a small price to pay.
Hard money loans are best suited to fix-and-flip investors. They are more expensive than other forms of financing and have a maximum term of five years.
The Best Hard Money Lenders in Phoenix
1. Hard Money Lenders
If you’re a real estate investor, you can get a loan from Hard Money Lenders for single and multi-family units, undeveloped land, commercial spaces, and even medical offices. The company offers one of the highest LTV ratios (90%) and interest starts at 7.99%. Terms range between three months and five years.
2. Axis Property Advisors
Axis Property Advisors offers hard money loans for fix-and-flip properties and rental properties. Interest rates start at 10.99% and go up to 16.99%. The LTV is 70% and single and multi-family residences are covered.
3. National Business Funding Solutions
For investors focusing on commercial properties, National Business Funding Solutions is a good lender. The company issues hard money loans ranging between $1,000,000 and $100 Million – at 3.75%. Other terms are open to discussion.
4. Sir Mortgage and Finance
Sir Mortgage and Finance caters to both commercial property investors and small-scale investors. Hard money loans are offered on a long-term basis for commercial properties and fix and flip loans are offered on a short-term basis. The LTV is 60% and interest rates are between 9-14%.
5. Windvest Corporation
Windvest Corporation is headquartered in California but extends hard money loan services in Phoenix. It dispenses loans between $100,000 and $3 Million with an LTV of 70%. Terms are between 12 months to 5 years and the lowest interest rate is 7.99%.
Hard money loans are ideal for investors and house flippers who need quick financing. You can get such a loan if you are squeezed for both cash and time. However, to avoid the predatory tendencies associated with hard money lenders, you should work with a local Clever Partner Agent.
They are well versed in the ins and outs of Phoenix real estate and will help you to identify great real estate opportunities. You’ll be told about the alternatives and have someone to help you go through the fine print.