Hard Money Investment Loans For Real Estate Investors With Bad Credit

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Hard Money Investment Loans For Real Estate Investors With Bad Credit Was UPDATED On November 26th, 2018

Many folks have heard of Hard Money Investment Loans .

Below is a brief outline of Hard Money Investment Loans:

  • Hard money investment loans are short term commercial loans made by private lenders
  • Hard money investment loans are money that is normally based more on the collateral at hand than a person’s credit scores, income, credit history, and financial profile
  • Hard money investment loans are extremely expensive and require upfront fees as well
  • Hard money lenders often charge an upfront fee of between 3% to 10% and interest rates more than 12%

In this article, we will discuss and cover Hard Money Investment Loans For Real Estate Investors With Bad Credit.

Terms Of Hard Money Investment Loans

What are hard money investment loans for real estate investors with bad credit?

Every hard money lender has its own lending criteria and requirements.

  • Unlike traditional commercial and residential lenders, hard money lenders set up their own lending criteria
  • Hard money lenders are normally concerned more on the asset or collateral than the person’s credit scores and income unlike traditional commercial lenders
  • Most hard money lenders will only lend between 50% to 80% loan to value
  • Upfront Points are charged plus monthly interest-only payments
  • Closing in two to three weeks
  • Depending on the lender, the terms of the interest payments can be due monthly or an interest reserve may be set up
  • Hard money lenders normally want a minimum term of 6 months and not more than a 36-month loan term
  • Even though most lenders are mainly concerned about the collateral, there are some lenders that will take income and credit into consideration for more favorable terms
  • Hard money lenders do not want to see outstanding judgments on the borrower

This is due to the fact that the judgment may be enforced and a lien being placed on the collateral.

Benefits Of Hard Money Financing

Hard Money Investment Loans have higher interest rates and costs than traditional commercial loans:

  • However, there are many benefits to the right borrower
  • Real Estate Investors can take advantage of hard money loans on an appreciating real estate market
  • We close our loans in two to three weeks
  • Bad credit is not an issue and neither is income verification

This is because it is underwritten based on the property and not the individual borrower.

How Hard Money Investment Loans Benefits Real Estate Investors

What are the benefits of financing with hard money?

Let’s take a case scenario where a hard money loan is advantageous to a real estate investor:

  • Let’s assume a real estate investor wants to purchase a property for $100,000 from a sheriff’s sale that is coming up shortly
  • He contacts a hard money lender
  • The hard money lender will approve a 65% loan to value loan to the real estate investor
  • But wants a 6% upfront origination fee and 15% interest with a minimum loan term of 6 months
  • The real estate investor knows if he purchases this property from the sheriff’s sale and if he invests $20,000, he can resell the property for $200,000 in less than six months

The real estate investor decides to go for the deal.

Case Scenario

Here are the numbers:

  • Real estate investor needs to pay the hard money lender 6% of the $65,000 loan amount which is $3,900
  • Real estate investor invests $35,000 of his own money
  • Real estate investor invests $20,000 for labor and material to rehab the subject property
  • Takes him two months rehabbing the property
  • Real estate investor then places the property in the market at a price of $200,000
  • Lands a purchase contract at the asking price of $200,000 within several weeks of listing the property and takes him four months to close on the property
  • Real estate investor need to pay six months of interest of $65,000 at 15% interest which costs him $4,875
  • Real estate investor needs to pay a real estate sales commission of 6% or $12,000

Here is the summary of this case scenario.

  • Original investment from real estate investor is $35,000 down payment
  • $3,900 upfront fee of 6% to the hard money lender
  • $4,875 interest payment to hard money lender: 
    • 15% annual interest rate, interest-only payment for a loan amount of $65,000
  • $20,000 rehab cost for labor and materials
  • $12,000 real estate sales commission to real estate agents
  • $5,000 in closing costs

Total investment from real estate investor is $80,775

Property sold for $200,000 so net profit is $200,000 minus $80,775 which yields $119,225.

The above example is a simple case scenario where the transaction was extremely profitable to the real estate investor. However, not all transactions go smoothly where it is a win-win situation.

  • Borrowers of hard money loans should consider the risk versus rewards because investors can lose their entire investment
  • Commercial lenders are not regulated the federal nor state mortgage regulators
  • Commercial real estate investors are viewed as sophisticated investors so they do not have the protection of state and federal mortgage regulators

Real Estate Investors and Property Flippers in need of hard money and private money financing, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] Hard money loans close in two weeks. We are available 7 days a week, evenings, weekends, and holidays to take your inquiries.