Hard Money Loan Rates and Fees
If you’ve heard about hard money loans, you may have also heard about higher interest rates and loan fees. The truth is, hard money loans were designed to answer specific needs in real estate investing (which they do very well). In order to accomplish those goals, hard money loans are structured differently than traditional mortgages.
Current hard money loan rates, as of 2021, vary between about 7.5% and 15%. Every hard money lender, however, offers slightly different rates and fees. The first step to making a good decision is to understand what they are and approximately what the numbers should be.
If you’re interested in hard money financing, a quick overview of hard money loan rates and fees is very helpful.
What is Hard Money?
Hard money is a short-term loan financing option provided by private lenders and backed by assets—usually the real estate in question—rather than the borrower’s credit. Hard money lenders are not bound by the same restrictions and regulations as traditional financial institutions, so hard money loans can be more flexible than conventional mortgages or loans.
When Hard Money Loan Rates Make Sense
Hard money financing was designed to meet the needs of real estate investors who have to move large amounts of cash quickly, for short-term, high-value investments. The most common uses for hard money loans include:
- Flipping houses — Fix and flip loans were specifically designed for investors and flippers who are buying discounted properties to fix up and resell at a profit.
- Construction — Residential or commercial investors often use hard money loans to finance a construction project. Investment properties are generally completed and sold within the short term of the hard money loan. For construction of a long-term residence, hard money loans can get a project moving quickly, while the owner shops for a good mortgage.
- Bridge loans — Bridge loans are short-term loans used to cover a financing gap. In real estate, bridge loans are commonly used to buy a home while the borrower is still trying to sell an existing residence.
- Transactional funding — Transactional funding is a type of very short-term (24 hours to five days) hard money loan that enables a wholesaler or investor to purchase a property without using any of their own funds.
Hard Money Loan Rates and Fees
Hard money loans, then, do come at interest rates that are higher than a standard, 30-year mortgage, but it is because the loans were only designed for short terms (generally 12 to 18 months). There are also some standard fees that most hard money lenders charge, and it’s a good idea to be aware of every variable:
- Interest rates — The average interest rate on a hard money loan is about 11.25%, but it can range between 7.5% and 15%. (Loan Ranger Capital offers standard interest rates between 10.9% and 13.9%, and our Top Shelf program offers interest rates as low as 7.9%.)
- Loan origination fee — These are charged as “points,” which are 1% each of the total loan value. Most hard money lenders charge between 2 and 4 points. (At Loan Ranger Capital, our fees start at 2 to 3 points, and go down to 1 to 2 points for our Top Shelf program.)
- Processing or doc fees — Most lenders charge a fee for processing and documentation. (Loan Ranger Capital’s doc fee is generally $995, which is very competitive for hard money lenders in Texas.)
- Appraisal fee — The borrower generally has to cover the appraisal fee before a loan is approved. (Loan Ranger Capital does not require an appraisal.)
Prepayment penalties — Some hard money lenders charge a fee/penalty for paying off a loan early. (Loan Ranger capital does not.)
How to Get the Best Rate on Your Hard Money Loan
Hard money lenders are private companies and individuals, so they’re not bound by the same restrictions as traditional institutions. We have room to be flexible with loan terms.
Here’s how you can get the best rate on a hard money loan:
- Have a good down payment. Most hard money lenders require a 20% down payment, but the more you have, the better your loan experience will be.
Investing more of your own capital demonstrates that you’re invested in the project, which lenders really like to see. Reducing the overall loan amount will also reduce the origination fees, which are calculated as a percentage of the total.
- Improve personal and business credit — Hard money lenders work with LLCs, so you’ll need to establish a business anyway. Take out a business credit card and start building some good business credit while you work to improve your personal credit score.
A good credit score is not always a requirement for a hard money loan, but it can help improve the terms of your loan. At Loan Ranger Capital, for example, our standard hard money loans have no credit score requirement, but our Top Shelf program does.
- Earn experience and build a network — New investors and house flippers are a liability for lenders. Many new house flippers, for example, come to the industry with excitement and high hopes, fueled by “reality” television shows, but aren’t prepared for the complications and setbacks of real life house flipping.
You can earn experience by working with another local flipper or investor (while you save up a down payment, maybe) on one or two projects. You can also start building a network of trusted contractors, experienced real estate agents, and mentors.
- Shop around — Every hard money lender has different requirements, terms, rates, and fees. Local hard money lenders are usually your best option, especially for fix and flip projects, but you probably have a few options in your home state.
Hard Money 101: Loan Rates and Fees
There’s some variation, and the real estate market changes rather quickly, so the best way to find current interest rates on hard money loans is to call or email a few local lenders. Now that you know what the average range is, you know what to expect, but always compare rates from a few different lenders to get the best, up-to-date information.
If you’re considering a hard money loan for a house flip or other investment, be sure to ask about other standard fees too, as you compare lenders.
If you’re in Houston, Austin, Dallas, or anywhere across the State of Texas, our team at Loan Ranger Capital would love to talk about your investment project and your needs. Give us a call at 512.220.9916, email firstname.lastname@example.org, or contact us online. Our low interest rates and fees are just one of the reasons that we maintain long-term relationships with so many Texas investors.