Current hard money loan rates, as of 2022, vary between about 9% and 14%. Hard money lenders, however, offer slightly different loan rates and fees. Real estate investors and house flippers turn to hard money loans for various reasons, including speed, flexibility, and convenience. If you want to make a sound decision when looking for a hard money loan, you first need to understand what hard money loans are and what the loan costs should be.
A quick overview of hard money loan fees and rates is highly beneficial if you’re interested in securing a hard money loan.
Table of Contents
- » What is a Hard Money Loan?
- » The Cost of Hard Money Loans
- » Average Hard Money Loan Interest Rates
- » Hard Money Closing Cost
- » Factors that can Affect Your Hard Money Loan
- » Ways to Get Better Interest Rates on Your Hard Money Loans
- » Benefits to Getting a Hard Money Loan
- » Your Trusted Southern California Hard Money Lender
What is a Hard Money Loan?
So, what is a hard money loan? Also known as a bridge, flip, or rehab loan, this type of financing helps real estate investors buy and repair investment properties. Unlike traditional loans, hard money loans are based on the collateral that secures the loan. They are a great short-term solution for Southern California real estate investors who either don’t qualify for a traditional mortgage or need to close a deal fast.
Hard money loans differ from loans offered by banks, credit unions, and mortgage lenders. For starters, they don’t have to conform to the standard underwriting requirements. Therefore, real estate investors can use hard money loans to not only purchase distressed properties, but to rehab and repair them. Also, the lack of rigid underwriting requirements means that hard money loans can close quicker than traditional loans, which is critical when trying to secure a great deal.
The Cost of Hard Money Loans
If you don’t have large amounts of money available or don’t want to tie up 100% of your available funds, hard money loans provide a stable flow of funds for real estate investors looking to supplement their investment deals. They provide an alternative, much more convenient funding method to traditional loans.
If you’ve heard about hard money loans, you’ve probably also heard about their higher interest rates and loan fees. The questions everyone wants an answer to is – What is the cost of hard money loans? How hard money loan rates are the interest rates? Aren’t hard money lending rates high?
Average Hard Money Loan Interest Rates
The average interest rates on a hard money loan vary from one hard money lender to another but generally range between 9% and 14% annually.
Sure, the hard money lender rates might sound high but remember that Southern California hard money lenders are taking a more significant risk when handing over their cash to investors for projects that conventional lenders find too risky. The higher average rates reflect this and shield them from losses in the case of a failed property project.
The short span of hard money loans also makes up for the higher rates you’ll pay to procure them. They can last as little as 12 months and top out at around three years.
Hard Money Closing Cost
Whether you borrow from a Southern California hard money lender or a conventional lender, you can expect to pay closing costs. You need these payments for all the people and services required to create the loan.
Standard closing costs for hard money loans include:
- Origination Fee
- Underwriting fees
- Property Insurance
- Title and Escrow fees
- Title and Escrow fees
1. Origination Fee
Also known as the upfront loan fee or points, the origination fee represents what it costs the hard money lender to make the loan, from when they take your loan application to when they close the loan. Hard money lenders traditionally ask for higher origination fees than conventional lenders because their loans involve more risk.
2. Underwriting fees
Hard money loans are secured by actual property, using it as collateral in the case of borrower default. To secure the collateral and create a deal, an underwriter (legal firm or attorney) must create a legally binding agreement between the hard money lender and a borrower. The cost to prepare the loan and legal documents is often called the “underwriting fee,” and it is usually built into the origination fee.
3. Property Insurance
You cannot take a hard money loan and purchase or refinance a property without having some property insurance protection. It would simply be too risky for lenders to loan a large amount of money for an unprotected asset.
Your hard money lender will require you to purchase a property insurance plan from your insurance company. This cost varies based on the type of project, the property usage, location, and property value.
4. Title and Escrow fees
Escrow fees are the closing fee paid to the private lender company for managing and insuring the transaction. This includes title search and settlement fees used to research property ownership. It also includes survey fees, notifying fees, and other associated title fees.
Factors that can Affect Your Hard Money Loan
While interest rates for hard money loans vary from one hard money lender to another, here are some of the factors that affect interest rates on hard money loans:
1. Credit Score
While your credit score doesn’t significantly affect whether or not you’ll get a hard money loan, it may negatively or positively impact the interest rate of your hard money loan.
2. Requested Loan Amount
The amount you borrow may also affect the interest rate a hard money lender is willing to charge. The interest rate for a $500,000 loan may be higher than that of a $100,000 because the lender is taking a more considerable risk.
3. Term Length
The length of your term is reliant on the cost of the loan. Your term length gets set once your loan amount is decided.
4. Type of Property
The property you’re investing in may also affect the loan interest rates. Low-risk properties tend to attract more favorable interest rates than higher-risk properties.
The constantly evolving real estate market heavily influences your interest rate on your hard money loan. Be sure to conduct market research before making your financial request.
Ways to Get Better Interest Rates on Your Hard Money Loans
Since hard money loans were only designed for short terms, they attract higher interest rates than a traditional mortgage. Luckily, since private companies and individuals offer hard money loans, they aren’t bound by the same restrictions as conventional lenders and can be flexible with loan terms.
Here’s how to get the best rates on your hard money loan:
1. Have a solid down payment
Investing more of your capital shows your willingness to make the project successful, which lenders want. Most lenders require a 20% down payment, but the higher the amount, the better.
2. Improve your credit score
While a good credit score is not always necessary to get a hard money loan, it can help improve the terms of your hard money loan.
3. Gain experience and build a network
As a new investor, hard money lenders tend to see you as a liability. You can gain experience working with another local flipper or investor on several projects. You can also use this period to build a network of real estate agents, contractors, and mentors.
4. Shop around
Since hard money lenders have varying terms, rates, and fees, you probably have several options.
At RTI Bridge Loans, we will help you determine which of your factors will affect the interest rates on your hard money loans. Contact us today for the best hard money loan rates Southern California offers.
Benefits to Getting a Hard Money Loan
Here are three of the main advantages of using a hard money loan:
1. Speed / Closing Time
The process of applying and getting approved for a hard money loan is significantly faster than a traditional loan. RTI Bridge Loans typically funds hard money loans in 5 to 7 business days.
2. Your credit score is not a significant factor
Asset-based lending means that loan amounts are based on the value of the asset in question rather than on the borrower’s credit score and debt-to-income levels.
3. They specialize in lending on distressed properties
Unlike traditional lenders that choose not to lend on distressed properties, hard money lenders such as RTI Bridge Loans can structure deals specifically for them.
Your Trusted Southern California Hard Money Lender
RTI Bridge Loans is a Los Angeles hard money lender that helps real estate investors generate income and build wealth by rehabbing homes in Los Angeles, San Diego, and all of Southern California. We understand the fast-paced environment of local real estate investing, which makes us the best hard money lenders in the Southern California Region.
- A nationwide direct lender, not a broker
- Over 30 Years of Loan Experience
- Low Fees
- No Third-Party Reports
- 3-10-day closings
- No Prepayment Penalties
At RTI Bridge Loans, we work fast and turn loans around much quicker than our competition. As experts in markets across Southern California and investors ourselves, we understand that time is critical in Southern California’s competitive market.
Still have questions about the interest rates on a hard money loan? Ready to find out what you can qualify for? Call RTI Bridge Loans today at (562) 857-2285.