Hard money loan rates can range from 7.5% to 15% with three- to 36-month terms. Points to close on hard money loans typically fall between 2% and 10% of the loan amount. Pricing is primarily based on risk, equity, and borrower experience (if a fix-and-flip). Unlike conventional underwriting, hard money lenders develop their own guidelines.
Hard Money Lending Rates January 2019
|Maximum Loan Amount|
25% + of ARV
|Time to Funding|
Updated January 2019
Hard money loan rates don’t follow the same pricing as conforming or government-backed loans. This is because rates are set by private lenders based on their appetite for a specific sector and risk. The most important pricing criteria is often based on the project value and the borrower’s experience if a fix-and-flip.
Hard Money Loan Minimum Qualifications
Hard money lender underwriting is more flexible than conforming lenders in terms of borrower’s qualifications. They focus primarily on the property and the potential upside of the deal. They are investing in your project. If you are borrowing for a fix-and-flip, lenders want to see previous real estate experience or contractor bids and good equity.
In addition, borrower qualifications for hard money loans include:
- FICO score of 550+ (check yours free here)
- Detailed list of prior real estate experience
- Two to three months of bank statements
- Purchase contract
- Contractor bids to verify renovation cost if a fix-and-flip
Borrowers with extensive real estate experience and who have proof of completed fix-and-flips should expect to receive a lower rate than a new investor without a track record of successful flips. This is because the lender considers the new investors riskier than experienced investors, and passes this risk on with a slightly higher rate.
How to Apply for a Hard Money Loan
Online hard money lenders generally offer a standardized application process. Most lenders offer a short pre-qualification quiz online, followed by a formal online application or a phone call to discuss the transaction. Be prepared to upload your documents on the site as well. The application is a streamlined process for the experienced borrower.
Two steps to applying for a hard money loan:
- Complete online application: Quick online process to tell the lender about you and your project.
- Provide documentation: Formal underwriting to review the borrower’s documents and determine the hard money loan rates, terms, and loan cost.
Hard money loans are designed to close quickly, within 10 to 15 days. The borrower and lender work together to submit and review documents, as well as to order an appraisal on a tight timeline.
Hard money lenders require the following documents:
- Hard Money Loan Application: Application fee of a few hundred dollars may apply
- Credit Score: 550+ (check yours for free here)
- Bank Statements: Two to three months’ of personal bank statements
- List of Past Projects: Documentation of prior real estate experience
- Purchase Contract: Signed contract, including purchase price and property address
- Contractor Bids: Required for inexperienced investors
- Scope of Rehab Work: Required for all investors who plan on rehabbing a property
For information on where to find hard money loans and how to apply, be sure to check out our ultimate guide to Hard Money Loans.
How Hard Money Loan Rates Work
Hard money lending rates, also known as private money loan rates, are set by each private lender. These rates are not set by the prime rate or government-backed loan programs. They are influenced by the equity in a property or project, the perceived risk of the project, and the investor’s appetite for that particular project.
Underwriting flexibility gives the lender freedom to set rates based on risk and fund loans that normally wouldn’t get funding. The higher the risk (high LTV, property condition, and borrower experience), the higher the price. In addition, because hard money lenders primarily lend to investors only, they are not regulated like conventional loans.
Hard Money Maximum Loan Amounts
Hard money lenders each have their own minimums and maximums for loan amounts, which are based on the lender and the particular project needs, including the property type and loan term. Most start at $50,000 and go up to $5 million.
The maximum loan amount of a hard money loan isn’t set by the FHA, but is instead determined by the lender, the LTV of the property, and/or the ARV of the property. The lender will have a maximum LTV, which in most cases is 90%, and a maximum ARV, which is usually 75%.
For more information on calculating hard money loan rates, check out our hard money loan calculator, where you can input the specifications for your investment property and find out how much the loan is actually going to cost you.
LTV & ARV for Hard Money Loans
Hard money lenders lend based on loan-to-value (LTV) “as is value” and after renovation value (ARV) “subject to value.” Each lender decides what they have an investment appetite for and they set their guidelines based on their investment goals.
The maximum LTV and ARV are determined by the lender; in most cases, 90% LTV and 75% ARV are the maximum. These numbers dictate the down payment amount. If the LTV is 90%, then the down payment is 10%. The down payment is the portion the borrower is responsible for, so they have some “skin in the game.”
Factors that Affect Hard Money Loan Rates
In exchange for the risk of lending to a borrower or on a property that may not qualify for a conforming loan, lenders require higher rates of return, so hard money rates are higher than other types of loans. They offer a short-term solution to facilitate the transaction.
Three factors that influence hard money rates include:
1. The Exit Strategy for the Hard Money Loan
A clear exit strategy is required for a hard money loan, and the property owner must have equity. The exit strategy is flipping the property and paying off the hard money loan or refinancing into a conventional investment property loan.
The exit strategy for a hard money loan is significant because it determines the amount of time at which a hard money loan provider will have money at risk. Fix-and-flip investors who plan to sell their properties quickly may represent less risk to lenders than investors who intend to hold properties for longer periods of time.
2. The Hard Money Loan-to-Value
The loan-to-value (LTV) ratio will determine, in large part, what the risk is to the lender. The risk is typically lower to the lender when the borrower has more of their own money invested into the transaction. Approval and rate pricing takes LTV and borrower qualifications into consideration.
For example, if a property is valued at $100,000 and the borrower borrows $75,000, the LTV is 75%. If instead they borrow $65,000, the LTV is 65%. All things being equal, the 65% LTV will receive a lower interest rate than the 75% LTV.
3. The Region of the Hard Money Loan
Hard money loan rates can vary regionally or by state. There are generally two types of hard money lenders: nationwide and small lenders that just cover a smaller geographic area. The nationwide lenders offer varying rates depending on the location of the property.
“The amount of hard money lending competition in a specific state or region can have a drastic impact on interest rates. Hard money competition in California is very high, which reduces interest rates. Interest rates in other states, such as Arizona and Utah, are typically higher as there are far fewer lenders in these areas competing for loans.”
– Jeffrey A. Hensel, Broker Associate, North Coast Financial, Inc.
If you want to find a local hard money lender in your state, check out our hard money lender directory. It has a list of lenders in all 50 states with an easy-to-use interactive map.
Types of Properties Funded by Hard Money Loans
Hard money loans are generally used to fund two types of properties: those that fix-and-flippers want to buy, and investment properties that long-term investors want to buy, rehab, and rent. Both types of properties usually need to be fixed up, but with different exit strategies.
Fix-and-flippers buy a property, complete extensive repairs, sell it, make a profit, and pay off the loan. Long-term buy-and-hold investors purchase a property with fewer repair needs, fix up it, season it with tenants, and refinance into a conventional loan, at which time the hard money loan is paid off.
Hard money loans allows short- and long-term investors to compete with cash buyers. They fund loans on a variety of property types, including condos, single-family homes, town homes, and multifamily properties. Hard money loans can usually fund properties in almost any condition in less than 20 days.
Hard Money Loan Examples
Let’s assume Joe has good credit, over a 750 credit score, completed five recent rehab projects, and is borrowing 50% LTV. Joe may qualify for 7% to 8% with under three points. However, if he borrows 80% LTV, his hard money loan rate will increase to the 9% range and points may increase to four. The less you leverage the property, the lower your rate and points will be; lower risk for the hard money lender equals better rates for you.
In contrast, Jane has fair credit, a 625 credit score, completed one real estate rehab, and requires 50% LTV. She will likely qualify for 8% to 9% with four points. If Jane requires more leverage, say 80% LTV, her rate will likely increase to 10% or more and her points may increase to five. Jane’s credit score, real estate experience, and LTV all affect her hard money loan rate.
Hard Money Loan Interest Rates, Terms, & Fees
Hard money lending rates today are generally 7.5% to 15%. Keep in mind that these loans are interest only, with the principal due at the end of the term. Terms on hard money loans are generally short and vary from one year to three years.
Lenders typically charge fees, also known as points, to borrowers to further mitigate their risk. Each point represents one percentage point. For example, one point on a $200,000 loan is equal to $2,000. These points are usually paid at settlement as part of the borrower’s closing costs.
An investor should expect the following hard money loan interest rates, terms, and costs:
- Hard Money Lending Rate: 7% to 15%
- Term: One to three years
- LTV: Up to 90%
- ARV: Up to 75%
- Points: 2% to 10%
- Down Payment: 10% or more of LTV, 25% or more of ARV
- Funding Time: 10 to 15 days
Hard Money Loan Rates Frequently Asked Questions (FAQs)
Hopefully this article has answered your questions about hard money loan rates, terms, and qualifications. If you still have questions, below are some of our most frequently asked questions about hard money loan rates. If you still have questions, be sure to visit our Fit Small Business forum and post your question there.
What Is a Hard Money Loan?
A hard money loan is an asset-based loan secured by real estate. It’s offered by a private lender and is also referred to as a rehab loan. Investors often use hard money loans because they will finance properties that conforming loans won’t. In addition, they close quickly, so the investor can compete with the short timeline of an all-cash buyer.
Are Hard Money Loans Safe?
Hard money loans aren’t backed by the government like FHA loans, so they’re not as heavily regulated. However, there are many reputable lenders that offer nationwide hard money loans, so it’s important to choose the right lender.
What Are Points on a Hard Money Loan?
Points on a hard money loan are the fees the lender charges the borrower for providing the loan. Each point is generally equal to one percentage point of the loan. Oftentimes points vary and are negotiable. Points may be in addition to a loan origination fee and they will appear in your closing costs.
What Is a Floating Rate?
A floating rate is an interest rate that is not fixed, but rather variable or adjustable. It can move up and down with the market or it can vary with the duration of the loan. For example, if the floating rate is set at prime plus 2%, and prime is 4.5%, the floating rate will be 6.5%, but when the prime rate rises, so does the floating rate.
What Is a Fixed Rate?
A fixed rate is the opposite of a floating rate. It’s an interest rate that stays the same during the duration of the term of the loan. The loan isn’t affected by what the market does; if it starts out at 4.5% and the term is for 30 years, it will remain at that 4.5% for the entire 30 years.
Hard money lending rates are offered by private lenders, and rates range from 7% to 15%. These rates are offered on interest-only loans with relatively higher than conforming rates and more flexible underwriting. Rates are affected by the property’s equity and location, and the borrower’s qualifications, such as FICO score, cash reserves, and real estate experience.