As I noted above, the standard terms for hard money loans are expensive.
But since these are short-term loans, they can still be absorbed with room
for a healthy profit. While each hard money lender is different,
normal loan terms look something like this:
Loan to Value/Loan to Cost: 65-75%
Lend on Rehab Costs: Yes
Interest Rate: 12-24 percent
Lenders fee (bonus):5-10
Other Fees (will vary by lender):
Retainer for a legal fee $1000
Application Fee $500
Term: 6 months to 8 month
Prepayment Penalty: Usually none
The loan amount ranges widely from lender to lender.
Indeed, while most of the lenders goes up to 75 percent
of the loan to value (LTV) or loan to cost (LTC),
they are willing to loan up to 65 percent of the
after repair value (ARV) if that value is higher.
This means that on rare occasions they have financed
100 percent of the cost of the property.
This only happens for particularly good deals,
however. Don’t go into a deal expecting this.
And to reiterate, what each hard money lender is willing to do
is different. Some, for instance, may be willing to use
other assets (say, another property) to
“cross-collateralize” a loan. This type of flexibility is another advantage of hard money lenders.
Other hard money lenders may max out at 65 percent LTV,
while some will go up to 85 percent. Remember to get clarification on
a lender is referring to the LTV (what the property is worth)
or the LTC (how much money you will be putting into the property).
Regardless, you will almost always need to find a way to raise the down payment.
Potential sources include savings, a partnership, or a personal loan from friends or
family. In certain cases with some lenders, as mentioned, another
free and clear property can be cross-collateralized.
The bottom line is hard money lenders are generally more flexible than banks,
and applicants have a better chance of negotiating adjustments to the terms
or repayment schedule with a hard money lender than they would with a bank.