Hard money loan rates are generally 7 percent to 15 percent, with the most common rates falling in the 10 percent to 12 percent range with one- to three-year terms. These rates vary based on factors such as the loan to value (LTV) of the property, after repair value (ARV), and borrower qualifications like prior real estate experience and personal credit score.
Patch of Land offers hard money loans with competitive rates for investors. They’re a reputable, nationwide online lender. You can get pre qualified today in just five minutes with their online application and you can get funded in a few weeks.
Hard Money Lending Rates June 2018
|Hard Money Loans|
|Rate||7% - 12%|
|Term||3 months - 3 years|
|Points||2 - 10 points|
|Maximum Loan Amount||90% LTV|
|Down Payment||10% + of LTV|
25% + of ARV
|Time to Funding||10 - 15 days|
Updated June 2018
Unlike conforming loans, government-backed loans and even SBA loans, hard money loan rates don’t vary that much based on market conditions. For example, if the prime rate is 4.50 today, a hard money rate wouldn’t be 4.5 plus a certain percentage. This is because these rates are set by private lenders based on a variety of factors, including the property being funded and the borrower’s qualifications.
Let’s take a look at some examples of how hard money loan rates are affected by the borrower’s credit scores, real estate experience and amount of leverage.
Let’s assume that Joe has very good credit, over a 750 credit score, has completed five recent rehab projects, and is borrowing 50 percent LTV on the property. He will likely qualify for a rate closer to the seven percent range and two to three points. However, if he borrows 80 percent LTV, his hard money loan rate will likely increase to the nine percent to ten percent range and his points may increase to four. Generally, the less you leverage the property, the lower your rate and points will be because it’s a lower risk for the hard money lender.
In contrast, Jane has fair credit, a 625 credit score, and has only completed one real estate rehab. She also requires 50 percent LTV. She will likely get a rate of eight percent to nine percent and three to four points. However, if Jane requires more leverage and needs 80 percent LTV, her rate will likely increase to 10 percent 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 Minimum Qualifications
Hard money lenders generally aren’t as strict as conforming lenders in terms of the borrower’s qualifications. They focus more on the property and the potential upside of the deal. However, they do want to see certain qualifications, such as a FICO score over 550 and real estate experience or contractor bids.
Typical borrower qualifications required 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 bid
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.
Patch of Land can get you pre-qualified for a hard money loan in just a few minutes. They’re an online lender that streamlines the process for busy investors. They offer competitive hard money loan rates and can fund the loan within a few weeks.
How to Apply for a Hard Money Loan
Online hard money lenders generally offer a standardized application process that can be done from a safe online portal. You take a short pre-qualification quiz online, apply on the site, and then upload your documents on the site as well. This makes it a streamlined process for the borrower.
There are generally two steps to applying for a hard money loan:
- Pre-qualification: Quick online process that gives borrowers an idea of what they will qualify for and what documents they need to have prepared
- Funding: Longer and more in-depth process that reviews the borrower’s documents and determines the hard money loan rates, terms, costs, and gives an approval
Hard money loans are designed to close quickly, within 10 to 15 days, so the borrower and lender will work together to turn in and review documents and order an appraisal on a tight timeline.
Hard money lenders generally expect 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 that includes the purchase price and property address
- Contractor Bids: These are required for inexperienced investors
- Scope of Rehab Work: Required for all investors who plan on rehabbing a property
For a more detailed look at applying for a hard money loan, check out our guide on hard money loans, which also includes where to find hard money loans.
How Hard Money Loan Rates Work
Hard money lending rates, also known as private money loan rates, are set by the individual private lenders. These rates are not set by the prime rate or a government-backed loan program like many other loans. However, they are still influenced by what’s going on in the real estate market, just with a greater flexibility than conforming loans or FHA loans.
This flexibility gives the lender the freedom to set the rate and lend to subprime borrowers and distressed properties that otherwise wouldn’t qualify for FHA or conforming loans. However, since lenders are taking on more risks, they also pass these risks onto the borrowers with higher rates and points. To learn about how hard money loan rates stack up against other loans, read our article on commercial real estate loan rates.
Hard Money Maximum Loan Amounts
The maximum loan amount of a hard money loan isn’t set by the FHA, but is instead determined by the lender and the LTV and/or ARV of the property. The lender will have a maximum LTV, which in most cases is 90 percent and a maximum ARV, which is usually 75 percent.
These numbers will help dictate the down payment amount as well. If the LTV is 90 percent, then the down payment is 10 percent. The down payment is the portion the borrower is responsible for, so they have some “skin in the game.” The down payment varies when the loan is based on ARV, and will be up to the lender to determine how much is required.
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
Some hard money lenders lend based on LTV and others on ARV. It’s really up to the lender and the structure of the deal. Some lenders consider lending on the ARV too risky since there are so many variables, including if the property is rehabbed up to the same standards of comparable properties and if the neighborhood remains stable.
Conversely, some lenders think lending on LTV is risky since the lender could lend on a high LTV and the property value could decrease and leave the borrower with negative equity, which will make it difficult to pay off the lender when the term is finished. As you can see, there are many variables with hard money loan rates.
Regional Hard Money Rates
Hard money loan rates can vary regionally or state-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.
Factors that Affect Hard Money Loan Rates
In exchange for the risk of lending to a borrower who may not qualify for a conforming loan and 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. The lenders set these rates based on a variety of things.
Factors that influence hard money rates include:
The Exit Strategy of the Property
A clear exit strategy is needed to get approved for a hard money loan, and the property owner must have equity in it as well. Generally, the exit strategy is either flipping the property and paying off the hard money loan or refinancing into an investment property loan.
The LTV on the Loan
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, which would create a lower LTV. Unfortunately, there isn’t a rule of thumb for LTV and its correlation to interest rate because other factors are involved, such as borrower qualifications.
For example, if a property is valued at $100,000 and the borrower borrows $75,000 on it, the LTV is 75 percent, but if the borrower instead borrows $65,000 on the same property, the LTV is 65 percent. All things being equal, the 65 percent LTV will receive a lower interest rate than the 75 percent LTV because the lender is taking less of a risk and the borrower has more of their own money invested and less leverage.
Types of Properties Funded by Hard Money Loans
Hard money loans are generally used to fund two types of properties: properties that fix and flippers want to buy, rehab and sell, and properties that long-term investors want to buy, rehab and rent. Both types of properties usually need to be fixed up, but they both have different exit strategies.
Fix and flippers usually want to buy a property that needs extensive repairs and after they rehab it, they sell it and pay off the loan. Conversely, long-term buy-and-hold investors usually want to purchase a property that needs fewer repairs. They use a hard money loan to compete with cash buyers, then they fix up the property and season it with tenants. Then they refinance it into a conventional loan, at which time the hard money loan is paid off.
Hard money loans are used by both short-term and long-term investors, and they’re also used on a variety of different properties including condos, single family homes, townhomes and multifamily properties. Hard money loans can usually fund properties in almost any condition. Generally, the more units the property has, the lower the LTV or ARV will be because the risk is considered greater.
Hard Money Loan Interest Rates, Terms & Fees
Hard money lending rates today are generally 7 percent to 15 percent. 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 percent to 12 percent
- Term: one to three years
- LTV: up to 90 percent
- ARV: up to 75 percent
- Points: 2 to 10
- Down Payment: 10 percent or more of LTV, 25 percent or more of ARV
- Funding Time: 10 – 15 days
Hard Money Loan Rates Frequently Asked Questions (FAQs)
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 and 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 giving the loan. Each point is generally equal to one percentage point of the loan. They may be the only fees the lender charges or they may be in addition to a loan origination fee. They will appear on 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 two percent, and prime is 4.5 percent, the floating rate will be 6.5 percent, 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 and if it starts out at 4.5 percent and the term is for 30 years, it will remain at that 4.5 percent for the entire 30 years.
Hard money lending rates are offered by private lenders and are generally in the range of 7 percent to 15 percent. These rates are offered on interest only loans and are higher than conforming loan rates. Rates are affected by the borrower’s qualifications, such as FICO score, cash reserves and real estate experience. They’re also affected by the property’s LTV or ARV.
If you’ve found an investment property and need a hard money loan to purchase and rehab it, then contact Patch of Land. They’re a reputable online lender that offers competitive rates for investors. They can get you pre-qualified online in just a few minutes and get you funded in a few weeks.