Hard money loans are an ideal option for successful real estate entrepreneurs who might not meet the requirements for traditional bank loans. Anchor Loans has more than 20 years of experience in fix-and-flip and rental property financing, and with our latest post, we’re highlighting nine questions real estate investors may have about hard money loans.
1) What makes hard money loans unique?
While conventional loans are based on the borrower’s income, credit, and other assets, hard money loans are based mainly on the value of the property to be renovated. This real property value (a “hard” asset) gives hard money loans their name.
2) Will I need to put money down?
In most cases, you will be required to have a cash down-payment as part of the loan structure. Your prior experience with fix-and-flip properties and the individual project will affect the amount of your down payment. The down payment requirement typically ranges from 15-20 percent.
3) What is the interest rate for a hard money loan?
As with most real estate loans, the interest rate for hard money loans varies according to the lender and the current market conditions. Anchor Loans’ interest rates generally fall between 8.00% -13.00% depending upon the property location and type, and the borrower’s level of experience.
4) What is the typical loan-to-value ratio?
Typically, the loan will not exceed 70% of the “after repaired value” or ARV. Anchor’s in-house valuation team determines a property’s ARV.
5) How long is the loan term?
Most loans provided by Anchor Loans are for less than one year with an option for paid extensions at Anchor’s discretion. Anchor Loans also offers three- and five-year term loans with our rental loan program.
No matter how long the term is, it’s generally best to pay back your hard money loan as quickly as possible to fully realize the value of your investment. Anchor does not charge a prepayment penalty on fix-and-flip loans, but rental loans may have a prepayment penalty.
6) What is the origination timeline?
For approved borrowers, loans on single family homes can be approved within 72 hours of application. Anchor Loans can fund rush loans in is as little as 48 hours, but the normal expected funding time is 5 to 10 business days.
7) How important is my credit rating?
While your credit rating will be considered during the loan application process, it won’t be as important as if you were applying for a traditional bank loan. Anchor Loans prefers a minimum 620 credit score, but it can be lower on a case-by-case basis.
8) What are the costs to consider?
Lender costs include an origination fee (typically 1-3 points), loan fee, and evaluation fee. Third party costs may include title and escrow fees.
9) Is financing available for repairs?
When financing repairs, Anchor Loans establishes a “holdback” account from which money is dispersed to cover repair costs. If a borrower chooses to fund their own repairs, Anchor Loans will verify that the borrower has the funds to do so.
In a holdback situation, Anchor Loans will fund the money for repairs into an escrow account. The borrower completes the repairs, then submits a request for reimbursement. Anchor Loans will inspect the property and confirm the work has been done, disbursing the money for the repairs once verification is complete.
Do you have more questions about hard money loans? Our team at Anchor Loans is here to answer your questions about real estate investment financing, fix-and-flip lending, and how you can get involved. To learn more, call us today.