What Is Hard Money Lending? Top 10 Hard Money Loan Questions

Hard money lending is an extremely popular form of short term financing for real estate investors looking to fund fix and flip or new construction projects.

Traditional mortgages tend to place the most importance on the borrower’s credit score, but hard money loans place more emphasis on the value of the asset involved in the specific investment. A hard money loan is primarily used as a source of leverage for real estate investors looking to maximize their capital or as a source of financing that can be available quickly in order to capitalize on a time sensitive investment opportunity. Hard money can be a confusing topic for new, and even some experienced real estate investors. To make things easier, we’ve put together a short list of some of the most common questions about hard money loans that we answer on a daily basis.

Does credit matter for hard money lenders?

Your credit score is not factor when underwriting a hard money loan. If your credit is recovering from something like a bankruptcy but your recent credit history has been clean, we frequently move past credit to look at the other factors in the loan file.

Can I get a hard money loan for a property I currently live in?

Due to various laws and regulations, hard money loans are not available for a primary residence. Great Jones Capital only funds real estate investment projects, and will only loan to an entity (LLC or corporation instead of an individual).

What is the difference between a hard money lender and private lender?

There are a lot of differences between a hard money lending company and a private lender, depending on your definition of a private lender. Traditionally, a private lender is a wealthy individual who offers to fund part or all of a project with their own cash. Unlike professional hard money lending companies these private lenders are more likely to run out of money, and have fewer processes in place to assist and protect the borrower. Great Jones Capital is well-capitalized and can fund individual loans up to $10 million. 

What is the typical length of a hard money loan?

Our hard money loans almost always have terms from 3 - 18 months, but can be extended depending on the situation. Since we do not charge pre-payment penalties, many of our borrowers pay off the loan before the maturity date of the loan.

What kind of interest and points are involved?

Typical hard money lending interest rates are 12%-14% annually, and 2 to 4 origination points. The origination points are a fee paid to the lender based on the amount of the loan, usually due at closing. It is also worth noting that your monthly payments are interest only until maturity.

Will the loan cover repairs if I am trying to fix and flip a property?

Yes! In fact, the majority of our borrowers are real estate investors that have purchased a property and are looking to rehab it and then sell it for a profit. For a fix and flip loan, Great Jones Capital will fund up to 80% of the purchase price plus 100% of the rehab costs.

Do I need to bring my own money to the table?

Most hard money lenders require the borrower to have some sort of skin in the game and cash reserves. We typically require borrowers to bring 20% of the deal cost to the table. In addition to funding part of the purchase for a fix a flip loan, it is important to have enough money in the bank to pay interest and deal with unforeseen project expenses.

Do hard money lenders care about the specifics of the project?

Very much! During the underwriting process our loan officers and underwriters will go through all of the deal economics with you to make sure the project is profitable for everyone involved. As a real estate investor you obviously want to make sure you can make a substantial return on your investment, and as a lender it’s in our best interest to only fund projects where everyone can make money.

How much money can I get from a hard money loan?

The answer to this question varies significantly based on the hard money lender that you are speaking with. In terms of dollar amounts, Great Jones Capital's current loan programs start at a minimum of $250,000 and go up to $10 million.

What is the process to apply for a hard money loan?

The first thing you do is speak with a Loan Officer. They’ll discuss the deal economics with you and figure out if the project seems like a profitable project for everyone. If it does, the next thing you’ll do is fill out a loan application and provide some basic documentation like a purchase contract for the property and a scope of work for the anticipated rehab or construction if applicable. During this time, we’ll also order an appraisal for the property. As the application progresses, our underwriters will collect additional documentation related to the borrower such as cash availability, income statements, and tax returns. We’ll also ask for information regarding the project’s contractor, title history, property insurance, as well as formation and EIN documents for the borrowing entity (since we only loan to entities, not individuals). Once all of this is in order, the loan moves to closing.

For a more in depth look at the entire loan process, please check out our how we work page. Have a project in mind that you’d like to speak with a Loan Officer about? Complete our short Pre-Qualification form or give us a call at (202) 810-5273