Hard Money Loans vs. Conventional Investor Loans

-If You Need Fast Access To Capital for REI Then A HML May Be Your New Best Friend!

By Rob Barney
President of DHLC Investments, Inc.

There are a lot of misconceptions regarding Hard Money Loans and Hard Money Lenders (HMLs). Most of the confusion surrounds the differences between conventional mortgages and HMLs. I wanted to take a moment and try to answer many of the general Frequently Asked Questions as well as to compare a HML to a Conventional non-owner occupied investor loan.

Frequently Asked HML Questions

How does the program work?

HMLs provide Real Estate Investors access to asset based capital. We can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

What is the interest rate?

The interest rate depends upon the Lender. The rate will range from 14% interest only to 18% interest only annual interest rate payable monthly in most cases.

What Loan-to-Value are MLS looking for?

Typically a loan does not exceed 70% of the after-repaired-value (ARV).

How long is the loan for?

HMLs typically write the notes from 6 months to 12 months depending on the Lender and your needs.

What are the costs?

Costs vary depending on which Lender you use. All loans will require at-least a Title Policy, Vacant Dwelling Insurance, Inspection, "As-Is" Appraisal & Flood Certificate. Most require origination points.

Can I get repair money?

Yes. HMLs can fund repairs. HMLs require a "Draw Request" form to be filled out to identify the completed repairs to the property, Copies of the invoices from the vendors. Then, we will pay you once the work is inspected-HMLs do not pay in advance for any work.

Does my credit matter?

Yes and no. For the most part, HMLs look at the value of the property after it is repaired, how much you are paying for it, and how much the repairs will cost to determine how much we will lend. In some cases, with your consent some HMLs may need to checkout your credit history.

How do you decide how much to loan?

Typical loans range from $25,000 to $1,000,000: All loans are considered on a case-by-case basis. Each HML has their own criteria.

Do HMLs need an appraisal?

Yes, HMLs require "as-is" and "as-repaired appraisals".

Do HMLs require inspections?

Yes, HMLs require inspections including the interior before funding and before a repair draw to ensure the work is completed in a satisfactory manner.

Do I need to put any money down?

In most cases, Yes. Most HMLs want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Therefore most HMLs require that origination/discount points and other required items be paid at or before closing. We are confident that if you cannot afford to close you typically cannot afford to take out this type of loan.

How much will my payments be?

To figure your monthly payment simply, multiply the rate by the loan amount and divide that number by 12.

Will HMLs finance commercial properties?

Yes, many HMLs will on a case-by-case basis finance commercial properties and then only if the loan is secured by improved real property such as the building and land.

Will HMLs finance apartment buildings?

Yes, many HMLs finance apartment buildings however understand that it will take us longer to get our due diligence done.

Do HMLs allow interest to be deferred to the end of the loan?

Some HMLs do. Most however have interest payable monthly. Again, we are confident that if you cannot afford to make monthly interest payments you typically cannot afford to take out this type of loan.

How do HMLs compare to a traditional non-owner occupied investor loan?

You might be surprised how competitive HMLs really are. Take a look at this comparison;

Comparison Matrix	DHLC's Hard Money	Tradtional Lender/Mortg.
Time to Close	1 - 2 weeks	4- 6 weeks
Monthly Payment ($100k loan)	$1166.66 @ 14% I/O	$1098.00 @ 7% + MI
Credit Qualifications	None - 65% of ARV	Yes - Varies
Cost to Obtain Loan	4% - 5%	3% - 6%(Incl. Orig. Fees & SRP)
Pre-Payment	Yes - 3 mo. min	Yes - Up to 2 years

Final Analysis

In many cases an HML can be obtained faster and easier then a conventional loan and while in almost all cases the amount you can borrow from a HML exceeds the amount you can qualify for from a convention lender the cost difference is minimal. HMLs are not for everyone and every HML has a different program and qualification process. However if you need fast access to capital for REI then a HML may be your new best friend.

Good luck and may all your investments be profitable!