Hard Money Lenders and Loans

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Considering a hard money loan?

We help real estate investors get hard money/private money loans for their next project. Money and finances should never be the obstacle that stops you from succeeding. We regularly help entrepreneurs, real estate investors, and businesses of all sizes challenge the status quo. We take risks on the go-getters, and do’ers – who have an opportunity and need a partner.

At Delancey Street, we invest in people and their ideas – not abstract concepts like credit scores, or other financial metrics. Tell us about your idea, let’s discuss your opportunity – and how we can help you capitalize on it. For years, our team members have been helping people capitalize on opportunities using hard money loans, private loans, reverse mergers, other financial vehicles.

  • High LTV

    We fund loans up to 80-90% LTV. We look at the value of your property, and your overall business plan when deciding whether to fund you.

  • Fast

    We realize deals can disappear if you don't have fast funding. We promise to treat you like a partner, and work fast to help you get funding.

  • No $ Limit

    We're a growth focused private money lender. That means we work fast to fund your deal, and there's no limits on what we can do for you.

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Recently Funded Projects

Residential Refinance

Residential refinance in Los Angeles, with a loan amount of $830k, at 75% LTV. We were able to help the investor get a loan at 8.99% with a balloon payment after 18 months.

Raised APR ARV
$830,000 8.99% 75%

Residential Investment

Delancey Street funded a new residential purchase in California, for $1.2 million with 82% LTV. We helped the developer with a loan at 11% with a balloon payment in 9 months.

Raised APR ARV
$1,200,000 11% 82%

Allen Park, MI Rehab

On the other hand, we denounce with righteous indignation and dislike men who are so beguiled and demoralized by the charms of pleasure of the moment, so blinded by desire.

Raised APR ARV
$135,000 9.0% 63%

Hard Money Lenders and Loans

Hard Money Lenders

Hard money loans, are unlike conventional bank financing. These loans are considered, “privately funded loans,” as the requirements vary from one lender to the next. Lenders are concerned with one thing: the collateral, and equity protection. Rates are higher than conventional loans, but funding times are faster, and loan criteria and repayments terms can be individually tailored. Hard money loans are referred to as a last resort, depending on your exact situation. Experienced investors know that if you want a property – you have to move fast. When you want to buy a property within a few days, a hard money loan is the only way to do it. Traditional loans take time. It’s impossible to get a traditional loan approved in 3-12 days. Most traditional lenders take 1-3 months to approve you loan. Because hard money loans are secured by real estate, they come with different guidelines. For example, credit score doesn’t matter in a hard money loan. The lender only look at your collateral. Traditional lenders however, will never give a loan based on collateral only. In contrast, hard money lenders will. Traditional lenders care about your credit – whereas hard money lenders do not.

The funds in a hard money loan come from private investors who are interested in lending their money for interest. Lenders charge a higher than average interest rate – compared to traditional institutions. The source of the funds can come from an individual, or a pool of investors, who invest in your loan. Often, many will pool their money and work with a commercial lending asset manager, or through a broker who facilitates the loan.

As a result, this loan is used mostly by real estate investors who are interested in conducting transactions and need a source of money to leverage. Banks tend to not loan to investors, because banks want to make sure they’ll get paid back. Banks look at things like collateral, personal finances, and your credit score. Hard money lenders will often look at the LTV – loan to value – ratio, when evaluating your deal. Lenders prefer a low LTV – no more than 70-80%.

Lenders are useful when time is off the essence. Lenders can help you capitalize on critical opportunities – with fast loans, with no credit/income verification checks. If you can’t get funding through conventional means – then consider speaking to a lender. It’s a great option for short term financing.

Typically, it can take 5-10 days to get funding for a loan. Traditional banks take anywhere from 4-8 weeks. Lenders like Delancey Street can fund faster because our loans are funded directly. That means less paperwork, and less red tape involved in funding the loan. Moreover, you can get a hard money loan even if you have bad credit! Credit is not an issue. You should, however, have a plan on how you will repay the loan. Our funding criteria is based on equity in the property and your payment repayment plan. We make loans to foreign nationals, and entities – who have no credit. Typically, we’ll ask you for an appraisal to help us understand the loan to value ratio.

When is the best time to get a hard money loan

Borrowers should consider a hard money loan, instead of a traditional lender, when you need quick access. Gaining access to this capital comes at a higher interest rate because the investor wants a higher ROI than investing it into bonds, savings account, etc. Moreover, the investor is aware a traditional lender won’t lend to you – and thus, he/she is taking on additional risk by investing in your project. Only turn to an investor if you REALLY need this money.

While you can go to a traditional lender instead of a hard money lender, in most cases if you’re looking for a hard money loan it’s because you have a questionable financial history. Banks look for collateral, good credit, and cash flow. Moreover banks will make you go through a rigorous application process, and take time to make a decision.

Understanding Hard Money 

Life is simpler if you can get a mortgage for your case. Unfortunately, sometimes it’s not that easy. Sometimes you need money ASAP for a real estate purchase. If you don’t qualify for a conventional mortgage, then we can help you. Loans are one of many solutions, available for unconventional borrowers. Are they right for you? If not, what’s a better option? Keep reading, and we’ll educate you on loans, and how to make an informed decision.

These loans are a type of real estate loan. They are based off the value of the collateral(the property itself), rather than your capability to repay the loan. Here are some types of loans:

  • Bridge Loans. These are used to allow someone to buy property quickly, with the goal of reselling it, or refinancing it. These allow someone to buy a new property ASAP.
  • Fix and Flip Loans. These types of loans allow someone to buy a rehab property, and then fi it up quickly so it can resold later.
  • Owner Occupied Loans. These loans allow consumers who don’t qualify for other types of financing to get a property for themselves.
  • Construction Loans. These loans allow developers to get started on new construction projects, with the intent of refinancing, or selling it quickly.

How do loans work

These types of loans aren’t available to simply everyone. Most lenders do not give out hard loans for non-investment reasons. If your planning to use loans to fund your own private home, then that’s unlikely. Some lenders might make loans to consumers, but this can result in numerous problems. Loans are only given for a short period of time – usually 4-24 months. Most loans only require you to make interest payments, or in some cases – no payment at all. Rather than making payments each month towards the principal and interest – loans give you more flexibility. Hard money loans carry many perks, which hold appeal to investors: you get quick financing, short loan term lengths, and an easy application process.

It’s very common for lenders to expect you to bring some of your own money to the deal. Each lender requires a certain amount of money based on the loan to value ratio, or the after repair value ratio of the property. For example, if a lender will give you a loan based on 80% off the LTV ratio, and you want to purchase a house worth $100,000 – then you need to have $20,000 of your own cash.

How is the loan paid off

The loan is paid off in one swoop at the end – with a balloon payment. This covers the entire principle, interest, and any fees. In some cases, lenders might charge you some initial points before the loan begins. It all depends on the deal.

Hard money loans versus traditional bank loans

Hard money and traditional bank loan are different. They are tools for buying property, but that’s where similarities end. Loans are given out by private individuals and companies. Each loan can carry different terms, – not only from another loan, but also from a traditional bank loan. Some have short repayment periods, some have high interest rates. Compared with conventional loans, they are much easier to qualify for and be approved for. The underwriting standards for consumer loans are similar to traditional mortgages.

– lenders ignore bad credit, foreclosures, or bankruptcies, or other issues that prevent you from getting a traditional mortgage.

– lenders focus on the value of your real estate which serves as collateral for the loan, and they care about your loan to value ratio.

-Regular banks focus on the borrower’s credit rating and income.

Most lenders will not give you money to purchase your primary residence, because lenders will have to abide by Dodd-Frank regulation, which requires them to verify a borrower’s capability to repay the loan. Lenders will have to analyze the person’s income, and expenses, in order to make sure the debt to income ratio isn’t too high. Additionally, if a lender loans to private individuals, they are required to undergo licensing requirements with the National Multistate Licensing System and Registry. The requires both federal test and licensing, and a state test – so it’s a very expensive process. It’s a reason why most lender don’t lend to owner occupied homes.

Should you use a loan?

There are many benefits of loans. The term “hard,” in is a misnomer. These loan types provide a simple way for real estate investors to get funding.

  • Get quick money. Instead of spending weeks/months to to get a loan – a real estate investor can get  in a week, or less.
  • Lenient. Regular mortgages have stringent standards. But lenders focus on the collateral used for the loan.
  • Flexible terms. You’re working with private individuals and firms – not massive banks. This means lenders are more likely to create custom loans, tailor made, to your situation.
  • Increased opportunities. We provide you with large amounts of fast cash. It can mean the difference between missing a deal, or not.

Pitfalls of loans

Hard money loans can provide a lot of benefits. Here are some of the downsides of them.

  • High interest rates. Interest rates for  loans regularly go into the double digits. For example, if you take out a $100,000 30 year mortgage, at 7% APR, you’d pay $77,854 more in interest payments than a conventional mortgage which has a 3.5% APR interest over the duration of the loan. Most hard money loans are made over  3-24 month period, as opposed to traditional loans which are paid off over 30 years.
  • Lack of regulations. Compared to traditional mortgages, there is very little regulation of loans. It’s critical to know what you’re doing, and who you’re dealing with.
  • High fees. lenders have high interest rates, in addition to a wide array of fees such as origination fees, underwriting fees, early payment penalties, etc.
  • Term. loans are paid over a shorter period of time, such as 1-2 years. You need to have the money to repay the loan, or apply for an extension, or refinance, to pay back the loan. Some lenders may allow you more time, but will increase the interest rate.
  • Harder to refinance. Some traditional lenders require you to own the property for a certain minimum length before they’ll refinance your property. This can cause issues if your loan is due before you are able to refinance the loan.

When to consider getting a loan

Hard money loans are used as investment tools by investors. They are useful in a few situations, such as:

  • Unable to get financing elsewhere. Funding real estate investments is tricky. Traditional mortgages are difficult to get under normal situations. Banks are very cautious of making loans for investments, as opposed to loans for residences. As a result, if you’re looking for investment funds – then get a hard money loan.
  • You have a poor credit history. Loans are based off the collateral of the investment, not your ability to repay. Loans made to consumers – as opposed to lenders – are based off your ability to repay the loan. This means if you have a poor credit history, or no stable income – then you might not get approved for a loan.
  • You need money. Loans are great so you can get money ASAP. Traditional loans take time. Hard money is very fast. If you need to capitalize on an opportunity immediately, then you can get a hard money loan. If you can wait several weeks, then it’s better to get a loan.

When to avoid loans

Hard money loans open doors, and can close doors too. Here are situations where you should avoid these types of loans.

  • You are in a buyers market. If you want to sell the home after fixing it up, and homes aren’t selling well – then you might fail. If your  loan is due before you sell it, then you’ll need to refinance, or be foreclosed upon by the lender.
  • You don’t have a refinancing plan in place. Unless you sell your home before the loan comes due, you will have to refinance the loan. You should have a plan in place to refinance the loan, and know what the requirements are to conduct a refinance of the property.
  • Other options are available. Loans are expensive. Make sure you look into other options always.

What are the benefits of hard money loans

Hard money loans come many benefits. The biggest benefit is the fact that borrowers can borrow money without going through conventional financing institutions. Due to the fact hard money comes private lenders, there are different guidelines.

Emergency situations: Hard money loans can be tapped for emergency situations. This is because hard money lenders only focus on the value of the collateral. Traditional lenders however focus on your ability to repay the loan. This is a huge difference, because it changes how the deal is evaluated. Once you’ve developed a good relationship with a lender, it’s likely you can have your hard money loans approved within hours. This makes these types of loans convenient for people looking for bridge lending/emergency loans, without having to go through the length institutional process.

Flexible: It’s a fact – these loans are more flexible compared to traditional loans. Hard money lenders do not subject you to rigid procedures and guidelines, unlike traditional banks. Hard money lenders are giving you money because they’ve assessed your collateral – and have made a determination that its value is enough to justify the loan. Lenders will look at the value of the property, and determine if by selling it – they can recoup their investment. If the answer is yes, then you get the loan! Because they are distill the issue to this one basic question – they are able to offer loans fast. In some cases, approval can take a few hours unlike loans from institutions.

Why might you not want hard money loan?

There’s some reasons why a hard money loan is a bad idea. For example, they often come with high interest rates. This is because a lender is taking on substantial risk, and wants to be compensated for that risk. The high interest rates might make a hard money loan unattractive as a source of financing. Moreover, lenders have shorter terms than traditional lenders. For example, institutional banks might offer 30 year loans – whereas hard money lenders only offer a 1-2 year term.

Can Fix and Flip Investors Get Hard Money Loans?

The short answer is YES. Fix and flip investors are investors who are great candidates for hard money loans. Because these investors purchase, renovate, and sell, within 3-12 months – they are ideal for lenders. Often, lenders want to get their money back as quickly as possible so they can keep lending it again and again. Hard money loans are great for short term investors like fix and flip investors – because it gives the investor the chance to purchase and renovate the property in a single loan. In addition, most lenders will only ask for payment on the interest – in contrast to traditional banks who will ask for payment on the interest and principal. As a result, many fix and flip investors speak to lenders for capital. Many short term investors look for houses in poor condition that if renovated can sell for more than their current market value. These houses come from short sales, foreclosures, and lender owned REO properties.

Using a hard money loan, fix and flip investors can finance the initial purchase of the house and in addition – can finance the cost of the renovations. Fix and flippers get hard money loans equal to the AFTER REPAIR VALUE, which is the expected fair market value after all the construction is completed. Once a property is purchased with funds from a lender, the investor can start the renovations. Typically, hard money lenders will give money in the form of stipends, or draws. It means the fix and flipper will have to float rehab costs until he/she gets money from the lender. During the renovation period, the fix and flip lender only has to make payments on the interest. At the end of the loan the fix and flipper will repay the loan using the profits of the house’ sale.

Frequently Asked Questions

What differentiates hard money lenders from bank lenders?

Hard money lenders are different because they fund more quickly, and have less requirements. Lenders are called “asset based lenders,” because they only focus on the collateral of the loan. Traditional banks focus on strong collateral, excellent credit, and cash flow. Hard Money Lenders will foreclose on your property and take it back if needed to satisfy the loan. Bank lenders don’t like doing this, and thus look at your ability to repay the loan. Hard money lenders are ok with factoring in the future proceeds of a sale when looking at your ability to repay the loan.

Why do lenders exist?

These lenders exist because many investors need a quick loan when looking for a real estate loan. Banks and other lenders offer low interest rates because they care immensely about your ability to repay the loan.

When does it make sense for a real estate developer to use a hard money loan?

In our experience, even developers with strong finances and access to bank credit choose to use hard money loans. There are many situations where time is of the essence, and a bank will just take too long. For example, if you need immediate funding for a deadline – then a hard money loan makes more sense. If you have an excellent investment opportunity but don’t have the financial strength to get a bank loan – then a hard money loan makes sense. If you have a bank line of credit, but need a larger loan than is allowed under the existing line of credit – then a hard money loan makes sense.

Are hard money loans only for distressed borrowers?

Not at all. While it is true, some borrowers are in distress when looking for hard money – in many cases it’s investors who turn to hard money.

What kind of property do hard money lenders lend on?

Lenders will lend on both residential and commercial property. Many will NOT lend on owner-occupied residences, due to the laws and restrictions. Examples of commercial properties include, but are not limited to: industrial buildings, shopping centers, office buildings, offices of all sorts, etc. Some lenders may even invest in raw land, which is slated for development. Vacation homes, are considered owner occupied, and thus may not be financeable by hard money loans.

What documents do I need for a hard money loan

Typical documents you’ll need are a Note, and a Deed of Trust. Depending on the value of the asset, the lender might ask for documentation such as a personal guarantee from the borrower, past tax returns, proof of income, and assurances that the borrower has access to cash to perform whatever renovation the borrower is intending on doing.

What is the point of the Letter of Intent

The LOI for a hard money loan is to provide a quick way of ensuring both the borrower and lender are in agreement about the terms and conditions. This isn’t legally binding, but it helps create a common set of guidelines that both parties generally adhere and agree to. It prevents miscommunication, or misunderstanding, between the two parties.

Why does the lender need title insurance

Title insurance is critical because it helps protect both the borrower and lender. In the event there are issues during the property sale, and there is a competing claim of ownership – then the title insurance company is responsible for paying any fees necessary to the claimant.

What happens if there’s a mechanic’s lien on the property

Mechanics liens are used by construction companies when a property owner fails to pay a contractor for services, or when the general contractor fails to pay sub-contractors. Title insurance doesn’t provide protection against this. Lenders will protect themselves against possible mechanics liens by making sure a loan includes the renovation budget, and that all of the sub-contractors and general contractors sign releases before disbursing funds.

How much do lenders typically charge?

Typically, lenders will charge interest rates in anywhere from 7% – 12%. They may also charge origination fees, which range from 1-3. It’s not uncommon for lenders to include pre-payment penalties which are used to guarantee the lender a specific profit.

Are they personally guaranteed?

Some lenders might request you personally guarantee the loan. It all depends on the value of the collateral. Typically a hard money loan has a term of 6 months, to 3 years.

What’s the maximum loan to cost for lenders?

Lenders look at two different measures when looking at deals. They look at LOAN TO COST, and LOAN TO VALUE. Most lenders won’t exceed a loan to cost ratio of 75%. Most lenders will keep their loan to value ratio around 60-65%. Lenders may use the lesser of the LTC or LTV, to assess the risk of a loan.

Can you transition from a hard money loan to a bank loan?

Yes, it’s possible. This can happen if the borrower is able to rectify the original reason why the bank refused them the loan. For example, if you improve your credit – then you might be able to get a loan as a result.

What’s a term sheet

It’s a conditional commitment letter, or a good faith letter. It’s a written expression of interest by a lender in making a loan, and an estimate of the eventual terms of the agreement. It is not a commitment letter. It is not legally binding. It is an encouraging statement, and means you’re in the right direction. If a borrower gets a term sheet, it means the hard money lender is willing to work with the borrower pursuant to the terms mentioned in the term sheet.

What are the costs a hard money lender has?

Many people mistakenly think there are no costs or fees. This is incorrect. Like all business owners they have costs they endure in order to do business. Most lenders have the following fees as a part of their investment. An investor might have one, or all, of the following:

Loan Servicing: If the loan isn’t being serviced by you, then you will have to pay either the PML or an outside servicing company. Servicing fees can vary by provider, and can be based on a flat fee, or a % of the original loan. The servicer will be paid for things like negotiating forbearance agreements, foreclosures, advances, loan modifications, or other things related.

Foreclosure: If you as a borrower breach the agreement, then the investor can foreclose your property. The lender has to pay that cost. This can include things like legal fees, fees to a Sherriff, recording fees, and statutory fees. Most promissory notes call for fees advanced to foreclose to be added to the balance of the debt.

Legal Fees/Advisory Fees: Expect to have a large number of legal fees from your attorney. Most investors rely on their PML to assemble the loan docs. On complicated transactions, the investor and PML hire counsel to draft and review all agreements. Often, the borrower pays legal fees at the loan closing.

How do application fees work?

This is a tricky subject when it comes to hard money loans. There are many con men who have made a business from stealing application fee money. That’s why we felt it necessary to discuss this. First – Delancey Street NEVER charges application fees. Application fees for hard money loans are charged by commercial real estate lenders, and commercial mortgage brokers, in order to underwrite the loan. It’s generally used to pay for third party reports, pay for the broker’s time, and the costs associated with arranging a commercial real estate loan. We’ve seen fees range from $500 to $100,000. Depending on the type of project you have, assessing it’s viability can be simple or complicated. For example, if you are simply flipping residential real estate – then it’s easy. But if you’re looking for a hard money loan on a big commercial project, the evaluation criteria vastly change. For example, a prospective hard money lender might look at the appraisal, toxic report, engineering report, title commitment, and many other things. The hard money lender will do his own research and have his own people do it, in order to make sure the findings are accurate. There are costs associated with all of these things – and therefore, they might charge an application fee to cover this. This is a valid reason for a fee.

In contrast, it’s tricky when a mortgage broker charges the same fee. For example, say a mortgage broker charges a $500 fee. It can be assumed this fee is for the broker’s investment of time and effort. The fee is not a guarantee you will get approved. You could get rejected – even if the broker does his job – simply because your project isn’t solvent. Perhaps you have unrealistic projections, or perhaps you misrepresented the value of the property. Just like lawyers and accountants charge for their time – brokers do the same. The problem is when a hard money broker flat out lies to the borrower in order to get the application fee. In some cases, brokers will misrepresent that the deal seems good – just to get the initial fee from the borrower. Later on, the broker says the project isn’t good and keeps the fee. It gets ugly when a broker pretends to be a direct lender and steals a big application fee. In some of the more audacious scams, the broker tells you he’s a lender, and quotes you competitive rates and even provides a term sheet which looks legit. He’ll then follow up – asking for a big $25000 application fee to get it started. Later, he disappears with your money, and you never hear from him.

It’s safer to work with a bank, than some mortgage company, when it comes to application fees. All banks require an application fee – so if you’ve applied with a bank, you’ll be ok – probably. Many brokers illegally use the word bank, or banc, in their company name – be careful about that red flag. Never pay for an advance fee until you’ve got a term sheet. If a hard money broker asks for more than $500 as a fee, watch out – you might be a victim. If a bank says they are a direct lender and want a fee larger than $5000, they might be legit. Google both the name of the loan officer and the name of the bank/company, before giving money.

Can portfolio investors use hard money loans?

Portfolio investors are long-term investors who invest in multiple properties at once. These long term investors like conventional mortgages. In general, banks and lending institutions only give out 4-10 mortgages to a single person. If a portfolio investor meets his or her limit, then the only option is to get a hard money loan. Most portfolio investors are highly leveraged, and as a result – rely on hard money loans to make additional purchases. As a result, hard money loans are great for them because lenders only look at the value of your asset. Portfolio investors can use hard money loans to purchase houses in good and bad conditions. If the condition of the house is poor, then lender can issue a loan based on the after repair value.

Hard money vs Conventional

Hard money loans have differences when compared to conventional mortgages. Conventional loans are issued by banks, and have very strict requirements, a longer approval time, a long loan term, lower interest rates and fees, and can be used for family homes, apartments, condos, multi-family units, and commercial property.

Hard money loans are given by hard money lenders; they have fewer requirements, shorter approval time and loan terms, higher interest rates and fees. Below is a comparison that can help you understand.

 Hard Money Loans  Conventional Mortgages
 Max Loan Amount  90% LTV / 80% ARV 80-95% LTV
 Minimum Down Payment  10% of LTV, or 20% of ARV  3.5% to 20% LTV
 Interest  7-12%  4-6%
 Points  2-10 points  0-1 points
 Loan Term  1-3 years  15-30 years
 Time to Approval  24 hours  45-60 days
 Property Type  Residential and Commercial  Residential and Commercial

The Loan Amount

Conventional mortgages gives loans equal to a % of the house’s closing price. This known as the property’s LTV ratio. Conventional mortgages typically issue loans equal to 80-95% of the house’s closing price. This means that conventional borrowers should anticipate covering a down payment up to 20% of the purchase price. Lenders on the other hand are given by hard money lenders. They issue loans based on the property’s LTV or ARV ratio. Hard Money Lenders issue loans up to 90% of the closing price. The LTV is used when the rpoperty is in good condition. ARV, on the other hand is used when the property needs renovations. Lenders will use ARV when an investor is seeking a loan for a fix and flip property.

Timeline

Conventional mortgages have a 30-60 day timeline for approval. Loans are given for a term of 15-30 years. In contrast, hard money loans offer quicker approval times, and have a term between 1-3 years.

Interest Rates / Fees

Conventional mortgages offer lower interest rates (4-6%). There is usually no hard money lender fees known as points. However of conventional mortgages are expected to cover closing costs, application fees, appraisal fees, and other costs associated with the transfer of property ownership. Interest rates on hard money loans are high, because they are short term and are risky for the lender. Expect interest rates between 7-12%. These loans also have fees of 2-10 points.

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