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 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 provide 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.
Read our blog post about what ARV is and how it’s determined for more information.
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.