If you need quick cash for investment purposes, hard money loans could be your best pick. This is especially true if you cannot secure a traditional loan due to bad credit or slow processing speeds. Most hard money lenders process their loans in weeks, if not days.
For many Floridians, securing a hard money loan is an easy choice. Thanks to the many private lenders in and around the city. However, finding the best lender with lower interest rates and higher loan-to-value (LTV) ratios can be challenging.
Below, we’ve explored all you need to know about getting a hard money loan in Florida. You’ll also learn how hard money loans work, hard money loan requirements, how to find a private lender, and everything in between.
What is a Hard Money Loan?
Hard money loans are short-term bridge loans offered by private money lenders, primarily to real estate investors. Borrowers use their real estate property as collateral when securing hard money loans; hence, both parties minimize the associated risks.
Most hard money loans have a repayment period of 1 to 3 years, while the interest rates range from 8% to 15%. The rates are higher than that of traditional banks since private lenders do not check the credit history, which equates to taking a higher risk.
Depending on the lenders, you may be required to pay interest on the loan every month. Here, the principal amount is required to be paid at the end of the repayment period. Some lenders charge a fee for making the payments earlier or later. Similarly, you’ll lose your property if you default on the loan.
Hard money lenders prefer to work with real estate investors since their business model suits them the most. For instance, a real estate investor can borrow a hard money loan to finance a property or complete some urgent renovations. They will only be required to pay interest on the loan until they sell the property (for a profit) and pay back the loan in full.
Since the real estate property is used as security for the loan, most private lenders have a lower LTV, usually 50% to 70%. That way, they can minimize the risks, just in case you end up not paying the loan.
Hard Money Loan Requirements
Most real estate investors will opt for hard money loans when the property they want to buy is in high demand, and the seller wants instant cash. Or the property will not pass the strict inspection of the typical mortgage lender. This is, however, not to say that hard money lenders don’t require a home inspection.
Like any other business, private money lenders hedge their risks by setting up some requirements that borrowers must meet. These include:
- Real estate experience. Private lenders prefer to work with veteran real estate investors who understand the market. Some newbies are a risk, and they may incur higher rates.
- Overall financial strength. Real estate investors with an impressive investment portfolio and multiple sources of income are highly preferred. This is because they can find a way to repay the loan if the investment strategy doesn’t go as planned.
- Downpayment. All private lenders will require that you put a 10% to 30% down payment on the property you want to buy. This also means having enough cash reserves to pay for the closing costs and other associated fees.
More often, popular investors and recurring customers have an easier time accessing hard money loans due to their positive track record. As a new client, you must always meet the above three requirements to secure a hard money loan.
How to Find a Hard Money Loan Lender
The private lending business has grown over the years, and many savvy investors are using these loans to secure hot deals in the market. In Florida, hard money lenders are everywhere, but you can pick the best by sticking to the following tips:
- Years of experience and reputation. The best lenders with the best rates are the private lenders with several years of experience in the market.
- Lending requirements. If the lending requirements are too good to be true, chances are, the lending company isn’t legit, and you could be scammed.
- Fees. The best lenders will not charge exorbitant upfront fees before processing the loans, so you should always be on the lookout.
- Client reviews. Always refer to reputed review sites like Google to see what past clients say about the company.
Getting a hard money loan in Florida is relatively straightforward. You just need a property to serve as collateral and ensure you meet the requirements mentioned above. You can also join a local real estate investor group to learn more about hard money lending. That way, you’ll know the best private lenders in the market and more on what you need to qualify for the loan.