Yes! You can purchase a home with a hard money loan. “Hard money” is any money that a private lender is willing to lend using real estate or other assets as collateral. A hard money loan is called an asset-backed loan because the collateral for the loan does not include employment or other income. Instead, the asset, usually a piece of real estate, is used to secure the loan.
Most listing agents (the real estate agent or broker who will help the seller decide whether or not to accept your offer) and other realtors are familiar with hard money loans.
In fact, from a listing agent’s perspective, a hard money loan is the MOST desirable loan that a home purchaser can make an offer with. This is because private lenders can close in 7 days or less and, unlike conventional, FHA, VA and even non-qualified mortgage (non-QM) loans, hard money loans have very few restrictions and guidelines that can kill the loan.
A hard money loan is a versatile tool and many successful investors use them to achieve their real estate goals.
Purchase Scenarios for Hard Money Loans
Fix and Flip
- One of the most common uses for a hard money loan is to purchase a property that is blighted or in need of significant repairs, fix it up and sell it for a higher price. This practice is commonly referred to as “flipping”.
- Conventional, FHA, VA, USDA and non-qualified mortgage (non-QM) lenders often will not approve a mortgage on a property with damages that require tens of thousands of dollars of repairs. It’s possible to get a great deal purchasing this type of property with a hard money loan because the increased difficulty of getting a loan greatly reduces the number of competing offers on the property. The flipper can then perform necessary repairs and sell the property for a profit.
Fix and Refi
- Hard money loans are also popular with investors who want to purchase a blighted, severely damaged property at a steep discount, repair it and hold it as an investment. The experts at Hard Money West can help you develop a strategy to purchase an investment property and refinance to a lower interest rate after repairs are complete.
Too Many Loans
- Many times, conventional, FHA, VA, USDA and non-QM lenders put restrictions on how many properties one borrower can finance. Technically, Fannie Mae and Freddie Mac guidelines recently made the welcome change from a limit of four conventional loans back up to the old limit of 10. However, very few if any conventional lenders will approve you for a loan if you own four or more properties.
- Because hard money lenders use only the piece of real estate itself to secure the loan, they are not concerned with how many other properties you have financed. This is a great benefit for real estate investors who may be able to make a profit of an investment property even with the higher interest rate of a hard money loan or who may be able to qualify for a refinance with a conventional, FHA, VA, USDA or non-QM lender at another time.
- If you’re in between jobs but have a good nest egg, a hard money loan is a way that you can start earning income from an investment property now while you wait to make your next career move.
- When your income fluctuates drastically, is seasonal or you’re not able to document it for any reason, a hard money loan allows you to purchase a home anyway and refinance anytime when you’re able to verify income again.
- When you know it’s going to get competitive and your offer is lacking for some other reason, a hard money loan gives you the ability to make a coveted “all cash” offer and close in less than 7 days (up to a month faster than with a conventional or FHA loan).
What is a Bridge Loan Hard Money?
A bridge loan is simply any short term loan that allows the property owner to purchase or refinance a property when unable to obtain a lower rate with a conventional or FHA mortgage. Because bridge loans are meant to be short term and do not require employment verification, income verification or an appraisal, the interest rate is higher. We suggest using hard money loans as a tool to obtain or maintain property until the property can be sold or refinanced (and we can help with that as well).
How to Get a Hard Money Loan for a Flip
The process to get a hard money for a flip or fix and flip is no different than when refinancing or purchasing an investment property that is a fixer upper. Take a look at our Compare Mortgage Products page or our Purchase page, click the button that says Apply Now, give us a little bit of information including your name and the property address and we’ll get back to you ASAP with a quote on your hard money loan. When you decide to move forward, we put you into contact with the lender who already has all the information they need from us. The lender then wires the money to the escrow company when you purchase your home. It’s that simple!
What Do Hard Money Lenders Look For?
One of the best things about working with Hard Money West is that our private lenders require very few documents. At most you will need to show a residential purchase agreement (RPA) and an ID, but often all that is required is verification of the property since that is the only collateral for your hard money loan. This allows you to make a stronger offer than your competitors when purchasing a home!
How to Find Hard Money Lenders
You can do research yourself and there wonderful organizations like the American Association of Private Lenders (AAPL) that can provide you with lists of private lenders. However, if you want to be sure that the private lender you’re working with is reliable and professional, it pays to find an experienced broker. The hard money experts at Hard Money West have been finding the best private lenders in the country for our clients for decades.
Is it Smart to Use a Hard Money Loan When Buying a Home in a Seller’s Market?
Yes! In a competitive seller’s market, you want to make your offer stand out any way you can so you don’t miss out on your dream home or investment. A hard money loan closes faster than other loans and there are less guidelines and restrictions that can cause the lender to remove approval of the loan before the transaction closes. As a result, listing agents prefer offers with hard money loans and are more likely to accept your offer.
The experts at Hard Money West can help you determine when it is right to use a hard money loan and even help you refinance into a conventional, FHA, VA or non-QM loan when the time comes.
Please contact us anytime if you have questions.