Looking for the best hard money lenders? In my 27-year career in real estate and investing, I have had to source hard money financing for simple fix and flip properties to multi-million-dollar apartment building rehabs. I’ve learned that choosing the right hard money lender for your investment project can be tricky.
In this article, I’ll cover the basics of hard money loans, how to choose a hard money lender that’s right for you, and how to get approved for financing. I’ll also share my top picks for hard money lenders, and so much more. Let’s get started.
What Is a Hard Money Loan?
First, what is a hard money loan? A hard money loan is a type of short-term property financing provided by a lender—usually a company or an investor. A traditional mortgage loan is typically paid back over 15 to 30 years, whereas a hard money loan term can be from as little as one to three years.
Hard money loans can incur higher costs than a traditional mortgage, but their costs are offset by their short term. For a hard money lender, the risk is higher, but so is their potential reward.
How Does a Hard Money Loan Work?
These loans are called “hard money loans” because the collateral used is a “hard asset.” Unlike traditional mortgage financing, a hard money lender makes lending decisions based primarily on the value of the property being purchased, and less on the creditworthiness of the borrower—although that’s still a factor. The property itself is typically the collateral for the loan.
What Are Hard Money Loans Used For?
Hard money lenders offer short-term, hard money loans on real estate for projects and purchases. These loans are commonly used with real estate investment deals like fix and flips or Buy-Rehab-Rent-Refinance projects (or BRRRs). Hard money loans are also sometimes used to avoid a potential foreclosure.
A hard money lender can offer ideal loan terms for specific situations, including no income verification and interest-only loans. Hard money lenders aren’t subject to the same regulatory and compliance rules as conforming loan lenders, such as retail banks.
Next, we’ll show you how to choose the best hard money lender for your needs. Check out FAQs at the bottom of this article for more information about hard money loans.
How to Choose the Right Hard Money Lender
While choosing the right hard money lender for your investment can be challenging, there are five key criteria that investors use to select the right lender for their project:
1. The Type of Real Estate Project You Need to Finance
The most important criteria to consider when choosing a hard money lender is the type of real estate project you need to finance. Some hard money lenders specialize in fix and flip properties, while others are cash flow, buy and hold lenders. It’s also important to note that not all hard money lenders will finance multi-unit or owner-occupied properties.
2. Interest Rates
Unlike most traditional mortgage lenders, hard money lenders are private individuals or companies lending their own money. Therefore, each has its own interest rates (within the legal limits, of course).
3. Loan-to-Value Ratio (LTV)
The amount a hard money lender will lend on a property often depends on the type of project, the borrower’s credit, and the asset being purchased. Still, like interest rates, each hard money lender has different loan-to-value ratios.
4. Upfront Fees
5. The goal of most hard money lenders is to make short-term loans that are repaid quickly so they can lend their money out multiple times each year. To maximize their profits, they charge upfront fees of between 1% and 5%. These fees are typically labeled as either Origination Fee, Upfront Fee, or Points.
5. Credit and Experience Requirements of the Borrower
While many hard money lenders prefer to work with experienced investors with a good credit history, some are open to newer investors or investors with less than perfect credit.
The Best Hard Money Lenders
There is no “one-size-fits-all” hard money lender because each borrower, project, and situation is unique. Therefore, selecting the right hard money lender for your real estate investment purchase will depend on you and your project needs.
To make your search easier, I put together this Best Hard Money Lenders list for each investment category.
| Best Overall Hard Money Lender for Investment Properties | Kiavi |
| Best Overall Hard Money Lender for Fix & Flips | RCN Capital |
| Best Hard Money Lender for New Investors | Lima One Capital |
| Best Hard Money Lender for Low-interest Rates | Groundfloor |
| Best Hard Money Lender for No Down Payment | DoHardMoney |
Best Overall Hard Money Lender for Investment Properties
Finding hard money financing for long-term, buy-and-hold properties can be challenging. The good news is that Kiavi specializes in just that: hard money loans for rental properties.
Kiavi uses the rental income from the property to help you qualify for the mortgage. This unique feature allows even a low-income or self-employed borrower to build an investment portfolio.
Kiavi offers loans on single-family homes, duplexes, and multi-family properties of up to four units. The term of their loans is 30 years, with a three-year prepayment penalty.
With adjustable rates starting at 3.875% with a 5/1 or 7/1 Adjustable Rate Mortgage (or ARM), and they even have an Interest Only option. To illustrate, a 5/1 ARM is a mortgage with a rate that’s fixed for the first five years, then your rate can adjust up to 1% each year after that.
Kiavi Rates & Terms (2021)
| Interest Rate: | 3.875%+ APR |
| Loan-to-Value: | 80% LTV |
| Upfront Fees: | $550 Appraisal, 1.5% Origination Fee, $999 Closing Costs |
| Credit Requirement: | No Hard Credit Pull |
| Investing Experience: | No Experience Required, Past Mortgage Required |
| Maximum Loan Amount: | $2.0 million |
| Prepayment Penalty: | YES |
| Property Types: | Townhouse, Single-Family, Duplex, Multi-Unit up to 4-Units, No Owner-Occupied Homes |
Best Overall Hard Money Lender for Fix & Flips
If you’re looking for a hard money lender that can offer low down payment financing, competitive interest rates, and 100% financing of the renovation costs and fees for your next fix and flip, then look no further than RCN Capital.
RCN Capital’s After Repair Value Loans will provide financing for up to 90% of the purchase price of your fix and flip property, plus 100% of the renovation costs up to 75% of the property’s After Repair Value (ARV).
With interest rates starting at 7.49% (Interest Only) for experienced investors, and up to a 12-month term, this loan is available for all property types, including condos, townhouses, single-family and multi-family homes, and mixed-use properties.
RCN Capital Rates & Terms (2021)
| Interest Rate: | 7.45%+ APR |
| Loan-to-Value Ratio (or LTV): | 90% of the Purchase Price and up to 75% of ARV for Renovation Costs |
| Upfront Fees: | 2% to 5% of the Loan Amount |
| Credit Requirement: | 620 Minimum Credit Score |
| Investing Experience: | Two fix and flips in the past three years |
| Maximum Loan Amount: | $2 Million (Up to $5 Million for Multi-family and Mixed-Use) |
| Prepayment Penalty: | NO |
| Property Types: | Condo, Townhouse, Single Family, Duplex, Multi-Unit, Mixed Use, No Owner Occupied |
Best Hard Money Lender for New Investors
Lima One Capital offers fix and flip loans for real estate investors with no fix and flip experience. They require their inexperienced borrowers to have a minimum credit score of 660 and the property to require no significant rehab, such as structural damage repair.
With rates starting at 7.5% for fix and flip loans, they don’t have the lowest interest rates or fees compared to some other lenders. Additionally, their maximum loan amount is limited to 70% of the After Repair Value (ARV), which means that you may need to be prepared to pay for a larger proportion of the repairs out of pocket.
Lima One Capital Rates & Terms (2021)
| Interest Rate: | 7.5% to 9.75% APR |
| Loan-to-Value: | 90% of the Loan-to-Cost (LTC) and up to 70% of the Loan-to-Value (LTV) for Renovation Costs |
| Upfront Fees: | 1% to 2.25% of the Loan Amount |
| Credit Requirement: | 660 Minimum Credit Score |
| Investing Experience: | No prior experience required |
| Maximum Loan Amount: | $3 million |
| Prepayment Penalty: | NO |
| Property Types: | Property Types: Townhouse, Single Family, Multi-Unit up to 4, No Owner Occupied |
Best Hard Money Lender for Low-interest Rates
Groundfloor is genuinely in a league of its own when it comes to hard money lenders because they use crowdfunding to fund your fix and flip loan. Accredited investors compete to fund your projects, allowing you to access to the best interest rates—often up to 2% lower than those offered by other hard money lenders.
Groundfloor also offers fix and flip loans for multi-family properties of one to four units in size—in 31 U.S. states. There are no payments during the term of the loans, and they allow you to roll your loan fees into the borrowed amount.
Groundfloor Rates & Terms (2021)
| Interest Rate: | 5.5%+ APR |
| Loan-to-Value: | 80 to 100% of Loan-to-Cost (LTC) and 75% of After Repair Value (ARV) |
| Upfront Fees: | $495 Evaluation Fee, 2.75 to 4% Origination Fee (Can be financed), $1,200 Doc Prep |
| Credit Requirement: | 600 Minimum Credit Score |
| Investing Experience: | No minimum transactions experience required |
| Maximum Loan Amount: | $1 million |
| Prepayment Penalty: | NO |
| Property Types: | Fix and Flip, New Construction, Condo, Townhome, Single Family, 1 to 4 Units |
Best Hard Money Lender for No Down Payment
Fix and flip financing that covers 100% of your outlay is hard to find. DoHardMoney will finance 100% of the purchase price, and in some cases, they will also finance 100% of the repair costs. DoHardMoney will finance the purchase price and repairs up to 70% of the property’s After Repair Value (ARV).
What’s the catch? Well … DoHardMoney’s 100% loans are limited to a maximum loan amount of $250,000, so if you’re in an expensive area, these may not work for you. The 100% loan also has higher upfront fees of 6.5% and higher interest rates than other hard money loans. However, you won’t have monthly payments for up to five months.
DoHardMoney Rates & Terms (2021)
| Interest Rate: | 5.5%+ APR |
| Loan-to-Value: | 80 to 100% of Loan-to-Cost (LTC) and 75% of After Repair Value (ARV) |
| Upfront Fees: | $495 Evaluation Fee, 2.75 to 4% Origination Fee (Can be financed), $1,200 Doc Prep |
| Credit Requirement: | 600 Minimum Credit Score |
| Investing Experience: | No minimum transactions experience required |
| Maximum Loan Amount: | $1 million |
| Prepayment Penalty: | NO |
| Property Types: | Fix and Flip, New Construction, Condo, Townhome, Single Family, 1 to 4 Units |
Hard Money Lending FAQs
This is a very broad topic and you may still have questions about hard money lending, including how to get a hard money loan, interest rates, and the differences between hard money lending and conventional home mortgage financing. We are here to help! Build off of the work I have done for you already—but don’t stop there. Continue to ask questions of potential lenders and research their terms to find the right hard money lender for you and your next real estate investment project.
How do you get approved for a hard money loan?
Hard money loans are different from conventional mortgages because they don’t require all the documentation or strict guidelines to qualify. Due to the flexible nature of hard money loans, there aren’t detailed guidelines to qualify, but most hard money lenders will consider the following criteria when approving your loan:
Down payment
The down payment you are willing to offer up is the most significant qualification factor for a hard money lender, but not the only one. While there are low-down payment, hard money loan options, most require 20 to 30% down. The higher the down payment, the lower the loan-to-value ratio (LTV). This reduces the lender’s risk if they have to take the property back in the event that you fail to repay the loan.
Collateral
Most hard money lenders are going to place a high priority on the collateral they are lending on. This can include the property itself or other properties and investment accounts they can cross-collateralize. They need to be sure that the collateral they are securing is more than enough to cover the loan and recovery costs.
Credit score
While your credit score is vital to some hard money lenders, it is not as important as the other factors in this list. The minimum credit score requirement for hard money loans can depend significantly on the collateral and your down payment.
Some hard money lenders will lend on credit scores as low as 600. However, the higher the LTV, the greater the risk to the lender, and they will require a better credit score or more assets collateralized to extend the loan to you.
On the other hand, if you have a large enough down payment and substantial collateral, the hard money lender may not even check your credit.
Income verification
In most cases, your ability to repay the loan is dependent on your personal income or the income from your business. Hard money lenders will want to know that you have enough income to cover the payments on the loan.
Unlike a traditional mortgage, where the lender will verify your employment and debt-to-income ratios, many hard money lenders may only need to verify through your bank statements that you have the income to cover the monthly payments.
No Income Verification (NIV) loans got a well-deserved bad name after the Great Recession of 2008. However, they are still an important tool used by many real estate investors and self-employed borrowers.
The property’s rental income
If the property is a cash flow property, some hard money lenders can use the rental income to qualify for the mortgage in lieu of the borrower’s income.
What costs are involved in a hard money loan?
In addition to your down payment, be prepared to pay 1% to 5% in upfront fees. These fees are typically called the Origination Fee, Upfront Fee, or Points. While some lenders charge only one of these fees, others may charge all three, so be sure to ask.
Additional closing fees from the hard money lender may include a Documentation Prep Fee, Underwriting Fee, or Closing Fees.
Be sure to inquire if your loan has any Extension Fees you’ll be required to pay should your fix and flip take longer than expected to renovate. Also ask about any Prepayment Penalty in the event you decide to pay off the property early.
Other costs you must account for are property insurance, transfer taxes, and Title/Escrow Fees.
Do I have to make payments on a hard money loan?
Most hard money loans (often called fix and flip loans) require interest payments during the term of the loan. However, well-qualified borrowers may not be required to make interest payments during the loan term.
How are hard money lenders different from other mortgage lenders?
Like traditional mortgage loan applications, hard money lenders still require a full credit report, asset verification, and down payment from the borrower. However, they are less stringent on qualifications like credit score, debt to income ratio, and asset verification.
Why are interest rates higher on hard money loans?
Due to the risky nature of hard money loans, the interest rates are higher than traditional mortgages. The actual interest rate may also change based on the property type, borrower’s credit score, and the use of the loan (rental vs fix and flip).
What type of loans do hard money lenders offer?
Hard money loans are typically used for fix and flips, and hard to finance income properties (like multi-unit properties larger than five units) as well as for mixed-use properties. Today, borrowers are using hard money loans as a bridge loan so they can purchase their replacement property before selling their property.
Investors also use this technique to do a Reverse 1031 Exchange. The investor uses the hard money loan to purchase a sizable multi-unit investment property. Then after they purchase and close, they sell their rental houses to satisfy the trade.
Investors also use hard money loans to fund new construction. RCN Capital offers up to 90% “Loan-to-Cost” new construction financing.
Do hard money lenders cover renovation costs?
Yes, most hard money lenders, otherwise known as fix and flip lenders, will lend on both the purchase price and renovation costs up to 75% of the property’s After Repair Value (ARV).
For example, you find a motivated seller willing to sell you their dilapidated property in a nice neighborhood for $200,000. If you were to remodel the kitchen, paint the exterior, and do other minor repairs, the property would be reasonably worth $350,000 (ARV). The lender will lend you $200,000 for the purchase price and up to $60,000 for the repairs.
How fast can I get a hard money loan?
While some hard money lenders claim they can close in as fast as five days, other factors must be completed that may take longer than a business week. To finance a property, you will need to have a Title Insurance Policy, and this policy may take a few days to ensure that all the liens are accounted for and paid to guarantee a clear title to the property.
Therefore, count on it taking a minimum of two weeks to complete the transaction.
Do I need an appraisal for a hard money loan?
While all hard money lenders may not require a traditional appraisal, they will have the property evaluated by a professional to ensure that the collateral is there to secure the loan.
Do hard money lenders check your credit?
Not all hard money lenders require a Hard Credit Inquiry. Some can just use a Soft Credit Inquiry that won’t affect your credit score.
If credit is a concern, most hard money lenders will approve loans for borrowers with bad credit if they have a cosigner, can put up a larger down payment, or additional collateral for the loan.
Bottom Line
Hard money lenders are not for everybody, but if you are either a new or experienced investor, a hard money lender can become an indispensable partner to you. Like any investment, there is risk involved. You can significantly reduce your risk by doing your research and acquiring as much knowledge as possible. If you have unanswered questions, please drop them in the comments section.
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