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A hard money loan is a short-term, asset-based loan that is secured by real estate and made by a private investor. Hard money loans are easier and faster to obtain than bank loans, require less documentation and are generally used by investors that may not be approved for traditional loans or need funds more quickly than a bank can provide.

What are the different types of hard money loans?

  • Purchase Money Loan – A hard money loaned used to purchase property such as a single family home, condo, townhome or multi-unit home. Also known as seller or owner financing, these loans allow people who cannot get approved for a traditional bank loan to obtain the funds they need. 
  • Fix and Flip Loan – A hard money loan used to purchase distressed properties or properties at or below market value that conventional banks won’t finance. Investors purchase these properties cheaply, repair them and resell them for a profit. These loans are often calculated using a loan to after repair value ratio and include funds for rehabbing and repairs. 
  • Mortgage Refinance – Life has ups and downs, hard money mortgage refinance loans help people facing difficulties such as foreclosure or tax liens get back on their feet and avoid losing their properties. 
  • Cash-out Refinance – Whether you need financing to fund your next investment or you just need cash fast, cash-out refinance hard money loans allow borrows to access the equity in their property quickly and easily. 
  • Bridge Loan – A hard money bridge loan is a loan used to bridge the gap between two real estate transactions. Most often this happens when a person or investor wants to purchase a property before they’ve sold another property that they’re using to finance the purchase.
  • Construction Loan – These are hard money loans are obtained by experienced builders for new construction projects and large-scale rehabs. Due to the complex nature and longer building periods of these projects, construction hard money loans are an excellent option for professional developers.

What types of properties qualify for a hard money loan?

All types of non-owner occupied properties can qualify for hard money loans. Each hard money loan is made on a case-by-case basis by private investors that allows for flexibility in both borrowing and lending. The most common property types financed by hard money loans include:

  • Commercial properties such as office buildings, commercial retail space, warehouses, apartment buildings and new commercial real estate construction
  • Residential properties such as single family homes, condos, townhomes, multi-unit or multi-family homes, fixer-upper/flip properties and new residential real estate construction

What is the difference between a hard money loan and a bank loan?

A hard money loan is much easier and faster to obtain than a bank loan. Hard money loans are asset-based loans, meaning the value of the loan is calculated by the value of the property. Unlike bank loans, hard money loans do not have credit or cash flow restrictions making them accessible to people with bad credit, no credit, tax liens, past bankruptcies or other difficulties. Since private lenders fund hard money loans they can also be financed much faster than bank loans, often in a matter of days.

Where do the funds for hard money loans come from?

Hard money loans are loans that are funded by wealthy individuals or groups of investors. Direct hard money loans are from a single source, like the loans at AFS, which means the capitol is on hand and available to borrowers immediately. Indirect hard money loans are brokered loans that will be underwritten and funded by multiple investors, this means lenders must “find” the funds and therefore they are not immediately available to borrowers.

Why do investors seek hard money loans?

Investors and individuals seek hard money loans because they are simpler, easier and faster than bank loans. Often real estate investors need to spend money to make money and have to come up with cash quickly. In these cases a short-term hard money loan offers a speedy solution that a bank simply cannot make. Other times, due to credit situations, bankruptcies, tax liens or other difficult circumstances, hard money lenders can make loans to individuals who otherwise would not qualify for loans.

What are the advantages of getting a hard money loan?

  • Simple application process with less paperwork and documentation
  • No need for perfect credit; all financial situations except active bankruptcy are eligible
  • Fast approvals, at AFS we can approve your loan in only three days
  • Borrowers are much more likely to be approved because loans are collateral-based
  • Less time wasted securing financing so you can focus on your business
  • Rapid release of funds. At AFS you’ll have your cash in hand in as few as 3-5 days
  • Short-term solutions to secure property when you need it most
  • Hard money loans are perfect for self-employed real estate investors, at AFS we’re here to help you fund and achieve your investment goals

How is the loan amount calculated?

Hard money loans are asset-based, meaning the loan amount is calculated by the value of the property. At AFS we have a loan to value ratio (LVR) of 70%, which means we’ll loan up to 70% of the property’s value. For fixer-upper and flip properties, we calculate the loan to value ratio using the after repair value (ARV) of the property meaning your loan is based upon the value of the property after it’s been rehabbed.

What are the most common situations that require hard money loans?

  • Real estate investors that need cash faster than a bank can provide
  • People with bad credit, no credit or past bankruptcies
  • Tax lien situations
  • Foreclosure situations
  • People who are self-employed and cannot verify income for a loan
  • People who need a bridge loan while they secure bank financing
  • Residential and commercial refinancing situations
  • Fix and flip investments in distressed properties that don’t qualify for bank loans
  • Purchase or construction loans for properties in remote locations
  • Anyone who needs cash but doesn’t want the hassle and red-tape of a traditional bank loan