Hard Money Lenders

How Does Hard Money Lending Work?

Real estate investors are always looking for creative ways to find financing for their real estate investments.  One of the options for real estate investors looking to obtain the necessary financing needed to purchase either fix-and-flips or rental properties is through a hard money loan.  A big question for many beginner real estate investors is, “what is hard money and how can it help me fund my investments?”  A hard money loan is defined as an asset based loan financing through which a borrower, the real estate investor, receives funds secured by the value of a parcel of real estate.  Hard money loans are often used outside of traditional bank financing because they offer real estate investors greater leverage and can close faster than a traditional loan from a bank.

Hard money loans are provided to real estate investors by a hard money lender.  Again a new real estate investor may be asking, “What is a hard money lender?”  A hard money lender has the capital necessary to provide the borrower with the required funds to complete the purchase of an investment property.  To acquire a hard money loan the real estate investor must apply and go through the lender’s underwriting process and if they are able to meet the underwriting guidelines and requirements to be approved and funded for the loan they will be provided the funds to complete the purchase of the investment property.  The property they are looking to purchase will also be appraised and an after-repair-value (ARV) will be given to determine the overall risk of the investment to the hard money lender.  If the property meets the requirements of the hard money lender as well then the loan will be funded and the investor will be able to begin working on their project.

At Lima One Capital the underwriting process can last as few as 7-10 business days from the time the borrower applies to the time the loan closes and is funded.  What allows for us to close and fund our deals so quickly is our dedicated team of NMLS licensed operations analysts, who are paired with a real estate investor and will work with them to close and fund their loan.  Our analysts have an in depth knowledge of all of our loan programs and will be available to answer any questions borrowers may have.

Another advantage that separates Lima One Capital from traditional hard money lenders is the straightforward rates and terms on our revolutionary programs.  Our rates go as low as 9.99% based off of borrower experience with our fix-and-flip program, where experience is based off the number of completed flips in the last 24 months, even deals that weren’t financed by Lima One Capital!  Our fix-and-flip program offers 90% loan to cost for both the purchase and the rehab of an investment property, offering the borrower greater leverage and the ability to do more deals.  We also offer a long-term rental program, the Rental30, for investors looking to build passive monthly income through the purchase or refinance of rental properties, as well as the Rental 2+1 that is designed to bridge the gap between short and long-term financing. We have also recently launched a new and exciting Multifamily program for investors looking to value add rehab to properties that are 5+ units.

Residential Hard Money Lenders

Residential hard money lenders are lenders who lend on single family residences (1-4 units) that are non-owner occupied.  Most residential real estate investing is either fix-and-flip or rental property investing.  Real estate investors looking to fix-and-flip homes find a distressed property, purchase it below market value and rehab the property in order to resell it and make a profit, with the average length of a flip being completed in around 9 months.  Real estate investors looking to purchase rental properties take a buy and hold strategy, meaning they purchase a property and hold it by renting it out to tenants.  The goal is to create multiple streams of passive monthly income through a rental property portfolio.  With the buy and hold strategy investors typically use a 30 year mortgage to either purchase or refinance a property and use the rent from the tenant to gradually pay off the mortgage and use the remaining monthly rent as passive income.

Whether you’re an investor looking to pursue a short-term or long-term strategy, investing in residential real estate is an excellent option for building long-term wealth and growing your personal investing business.

Commercial Hard Money Lenders

Investors who are looking to invest in multifamily/commercial properties can also obtain a hard money loan from a commercial hard money lender.  At Lima One Capital we have recently launched an exciting new Multifamily program for investors investing in properties with 5+ units looking to do rehab to those properties and create additional value.  This new program offers investors in the multifamily space competitive rates as low as 10% with 24 month loan terms and no pre-payment penalties.  As with our other loan programs, investors working with our Multifamily department can expect the industry standard in customer service and absolutely no hidden costs or junk fees.  

If you would like to learn more information about our Multifamily program click here to download our Multifamily brochure or feel free to give us a call at 1-800-390-4212 or send us an email at [email protected], we’d be happy to answer any of the questions you may have about Lima One Capital or our Multifamily program.

Hard Money Lending Terms

Below are some hard money terms that are useful for new real estate investors to know as they do their research about real estate investing:

Appraisal– An appraisal is used to determine the value of the home by an experienced appraiser.

ARV– The ARV or After Repair Value is what the home will be worth once the repairs have been completed on the property.  The ARV is a good metric to determining the overall quality of the investment and at Lima One Capital we will lend up to 70% of the ARV.

Cash-Out– Pulling equity out of a non-owner occupied, single family residential property.

Closing Costs– A closing cost is a fee charged to the borrower when the loan is closed.  Lima One Capital offers fixed closing costs to our borrowers.

Complete Rehab– Financing the purchase and rehab of a non-owner occupied, single family residential property.  

Construction– Establishing a construction loan on a non-owner occupied, single family residential property owned free and clear, using the subject property as the collateral.

Junk Fees– Unnecessary and costly fees that are charged by most hard money lenders.  At Lima One Capital borrowers can always be assured that they will never be charged any hidden costs or junk fees.

Leverage– The use of various financial instruments or borrowed capital to increase the potential return on an investment.  At Lima One Capital we offer our borrowers 90% loan to cost allowing our borrowers the ability to earn higher profits and do more deals.

Lien– A claim against a real property.  Lima One Capital assumes a first lien position on the properties we lend on.

Long Term Rental– Financing the acquisition and rehab of a non-owner occupied, single family residential property that the borrower is going to keep as a rental property.

Origination Fee– An up-front fee charged by a lender for originating a new loan, used as compensation for putting the loan in place.  Origination fees are quoted as a percentage of the total loan.  Can also be referred to as points.

Personal Guarantee– A personal guarantee is a guarantee in which an individual agrees to be responsible for the financial obligations of a debtor or borrower to a lender, in the event that the debtor or borrower fails to pay an amount owing under the loan agreement.

Principle– The base amount of the hard money loan is borrowed by the investor.

Proof of Funds– A letter that states the borrower is pre-approved for a hard money loan.

Transactional Funding– Financing designed for wholesalers.  Funding clients acquisition of the property (A-B transaction), given the property is sold in the same attorney’s office on the same day (B-C transaction), typically simultaneous transaction/double closing.

The above terms are just some of the hard money lending terms real estate investors should familiarize themselves with when looking to do their next deal and working with a hard money lender.  

Ready to Get Started?

At Lima One Capital we make it easy to finance all of your fix-and-flip, rental property, and multifamily investments.  We are a national hard money lender with a lending area that expands across 42 states as well as Washington, D.C.  We take great pride in providing the best rates and terms in the hard money industry as well as offering unparalleled customer service to our clients.  Our passion for real estate and seeing real estate investors succeed has been a staple of our company since our founding in 2010.  

If you have any questions about Lima One Capital or our programs, feel free to contact us a 1-800-390-4212 or send us an email at [email protected], we’d be happy to answer your questions!  If you’re ready to apply, fill out our simple, two-minute application and we will be in touch to begin the underwriting process!  We look forward to working with you as we continue to revolutionize the hard money industry!