For the most part, hard money loans are similar to conventional loans. You apply for the loan and if you are approved, you receive the funds. You then repay the loan, with interest, over a predetermined term.

But which type of lender should you approach for investment property funding: hard money or conventional? Hard money lending differs from conventional bank loans in the details. Precisely, the application process, the loan terms, the use of the loan, and the loan repayment. Here’s an overview of the differences between hard money loans and conventional loans.

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What Are Hard Money Fix and Flip Loans?

Hard money fix and flip loans, sometimes known as bridge loans, asset-based loans, or rehab loans, are short-term loans meant for renovation or house flipping projects that require cash urgently.

Hard money loans provide California fix-and-flip investors with the funding needed to purchase a property, revamp it, and sell it for a profit. Some real estate investors opt to get conventional loans for house flipping, but traditional loans come with a stringent underwriting process that slows down approval time.

Fix and flip loans are a type of bridge financing loans that typically feature:

  • Flexible terms
  • Fast approval
  • Interest-only payments
  • 12 to 18-month loan terms

Fix and flip loans are not intended for people to finance homes they intend to live in but are a perfect solution for California real estate professionals looking to expand their business.

Also Read: The Complete Guide To Fix And Flip Loans

Hard Money Fix and Flip Loans vs. Conventional Loans

Hard money fix and flip loans vs. traditional lending. Which type of lender should you approach: hard money or conventional?

Before moving further, you should understand how hard money lending differs from a conventional mortgage. Here are the main differences between fix and flip loans and conventional loans.

» Who Provides Each Type Of Loan?

A conventional loan originates from government-regulated institutions like banks, credit unions, and other financial institutions.

Borrowers use tangible assets like real estate to back fix-and-flip loans from private investors.
Since hard money lenders don’t adhere to the same government regulations as traditional lenders, they appeal to borrowers who might not typically qualify for bank loans.

» What Are These Types of Loans Used For?

Hard money fix and flip loans are ideal for investors who need to quickly obtain funding for an investment property project without the hassle attributed to bank financing.

Lenders offering traditional mortgages will typically loan on residential properties used for personal residences and rental properties.

» What Are the Qualifications Requirements for These Loans?

To qualify for a conventional loan, you need the following:

  • A minimum credit score of 620
  • Debt-to-income ratio not exceeding 45%
  • Minimum down payment of 3%, or 20% with no private mortgage insurance

The main requirement for obtaining a hard money loan is having the required equity in a property to use as collateral for the said loan. You need at least 25% to 30% in equity for residential properties and 30% to 40% for commercial ones.

» How Are These Loans Secured?

Do you meet a California hard money loan or traditional mortgage requirements? Here is how you will secure the loan:

  • A conventional bank loan is protected by the borrower’s credit and property.
  • A fix and flip loan is secured by collateral – the property you are purchasing will be used as payment to the hard money lender if you default on the loan.

» How Long is the Application Process?

Depending on the situation, lenders can approve a hard money loan request in as little as five minutes, or it may take several days for complicated loan scenarios.

The underwriting process of obtaining a conventional loan could take anywhere from a few days to a few weeks.

» What is the Duration of These Loans?

You pay off conventional loans in smaller increments spanning over a long period. The terms of traditional mortgages typically range from 10 to 30 years.

Hard money loans are short-term loans that appeal to those with a quick return of investment in mind. These loans typically last between 6 and 18 months

» How Long Will It Take to Get My Money?

One of the most significant differences between conventional and hard money loans is how long it takes you to close. While a traditional mortgage can take several weeks to close, you can usually close fix-and-flip loans within a week, sometimes less.

The Benefits of Hard Money Fix and Flip Loans

So, why should you choose hard money loans over conventional lending? Here are five benefits of fix-and-flip loans:

  • Fix-and-flip loan lenders offer more flexibility with the loan terms
  • Compared to traditional loans, fix-and-flip loans take a significantly shorter time to get approved.
  • You can get a fix-and-flip loan for a property of any type and condition.
  • Most fix and flip lenders will not charge you pre-payment penalties.
  • A fix and flip lender will usually cover the renovation costs for a fix and flip project.

Tips on Getting a Hard Money Fix and Flip Loan

Do you feel like you meet all the requirements for California fix-and-flip loans? Here are seven top tips for hard money borrowing for real estate investments:

  • Find a reliable local lender with plenty of experience
  • Ask about construction draws for fix-and-flip projects
  • Carefully calculate the costs and map out your profit margin
  • Ensure you know what lenders look for, and prepare adequately
  • Never buy a mechanically damaged house to fix and flip
  • Don’t overpay on property
  • Have an exit plan

California’s Most Trusted Real Estate Investment Lender

Real estate investors need financing partners they can trust. RTI Bridge Loans is a leader among hard money lenders in California. With over 30 years in the business, RTI Bridge Loans has established a stellar reputation for our responsiveness, efficiency, integrity, and professionalism

They offer a full suite of real estate investment financing solutions to California real estate investors.

Contact RTI Bridge Loans at (562) 857-2285 or request a loan quote online! You Invest in Real Estate, and We Invest in You.