Hard money loans are asset-based loan whereas the real estate is the primary qualifying factor in approving the loan.
Primarily utilized by investors, hard money loans can close in just a few days and offer up to 100% financing on residential purchases.
These loans can also be used for commercial properties on a case-by-case basis.
Hard money loans are are often used to purchase homes that are in disrepair and need to be renovated/updated.
Unlike conventional loan products, hard money loans can work as construction loans to provided the funds necessary to repair the property. These loans are typically interest-only and range from 6-12 months in length.
The loan amount is often based on the After Repaired Value (ARV) of a property which allows the investor to leverage the property more effectively. The ARV is determined by a licensed appraiser who takes the repairs to be completed in mind when assessing the value of the property, hence after repaired value.
If purchased at a good enough price, many times the investor doesn’t have to invest any of their own funds in the project. For investors looking to flip homes a hard money loan would typically offer a loan of up to 70% of ARV.
For buy and hold investors looking to build a portfolio the loan amount could be as high as 75% of ARV provided they qualify for a long-term refinance. This is a great alternative to investors who don’t have a 20% down payment as required by most conventional lenders.