Hard money loans are short-term real estate loans meant for real estate investment―specifically flipping properties.
They have short repayment terms (usually less than three years) and relatively high interest rates compared to other commercial real estate loans. That’s because hard money loans are designed to be paid off quickly, when a borrower sells or refinances a flipped property.
Hard money financing goes by many names, so you may also hear it referred to as a bridge loan, rehab loan, or flip loan―among other things.
You can learn more about hard money loans in our guide to commercial bridge loans.
If you want to find a good hard money lender, just take a look at our recommendations above. We’ve found some great options.
Wondering how to compare hard money lenders more generally? You’ll want to look at a number of factors:
- Loan amounts
- Interest rates
- LTV (loan-to-value) and ARV (after repair value) percentages
- Minimum time to closing
- Down payment
- Prepayment penalty (if any)
You’ll also want to make sure your hard money lender of choice operates in your area (most have at least a few state restrictions) and funds your type of project (townhome, condo, single-family home, etc.).
Different hard money lenders have different loan requirements, but there are a few things they usually look at.
Since your property doubles as collateral for your loan, they’ll usually want to know about your specific property and project. That’s why an appraisal (among other things) is a typical part of the funding process. They may also ask about your specific rehab plans.
Some hard money lenders may also require you to have flipping experience. While you can definitely find lenders willing to work with first-time flippers, the best deals are usually reserved for experienced rehabbers.
Then there’s the financial side of things. Some hard money lenders have specific income requirements or liquid asset requirements (basically, they want you to have money in the bank). And most lenders will check your credit. They don’t all have a specific credit score requirement, though some do.
Finally, pretty much all lenders will require you to have an actual business (usually an LLC) to get funded. They don’t fund individuals. That means you’ll also need a business bank account.
Of course, your specific lender will walk you through its own requirements.
As we said above, many hard money lenders don’t have specific credit requirements. Your credit score is just one piece of their approval puzzle, and some lenders don’t place much importance on it. (Instead, they care a lot about your liquidity and your experience.)
So if you have bad credit, it's not necessarily the end of the world.
That said, for hard money lenders that do care about personal credit scores, they usually look for something in the 600s. A 600 personal credit score is the lowest requirement we’ve seen.
A commercial hard money loan will often have an origination fee, which is a percentage of the total loan amount. Hard money financing also comes with closing fees, just like any other real estate loan. This can include appraisal fees, title fees, and insurance fees.
Some hard money loans come with a prepayment penalty. Be careful when getting one of these. Remember, hard money loans come with high interest rates because they’re designed to be paid off or refinanced ASAP after finishing a project. You don’t want to get a nasty (and costly) surprise when that time comes.