A hard money loan is a type of loan that uses the value of the real estate as collateral. It’s also known as an asset-based loan because it’s based on an asset: the property itself. This type of financing typically comes from private investors who are willing to put up their capital rather than banks or other financial institutions that rely on large amounts of outside funding (like credit lines).
In this blog, we’ll discuss hard money loan rates and what to expect.
How to Get Better Interest Rates on Hard Money Loans
Getting a reasonable interest rate on a hard Georgia money loan is not like getting a reasonable rate on a traditional mortgage. The process is more difficult, and the lender will have different priorities. But don’t let that stop you! You can still get the good deal possible by following these tips:
- Do your research: Ensure you’re working with a reputable lender, and don’t be afraid to ask for references from other clients.
- Know your options: You want to shop around, but don’t take too long to decide. It’s best to know what you want before you inquire about rates.
- Be honest in your negotiations: This is not the time to try to hide information from the lender. They need to know everything they can about your financial situation to be sure they’ll get their money back when they lend it to you.
- Be upfront about what kind of rate you’re looking for: If it’s too low, they may not work with you or give up on negotiating with someone who’s asking for something unreasonable.
- Last interest rate: Be clear about how much time has passed since you last got an interest rate quote from them (and tell them why). This way, there won’t be any surprises later.
- Increase your leverage: The more you can use the property to secure your loan, the better rates you will get.
- Put down as much as you can: When lenders see that you are willing to put in a bigger chunk of equity upfront, they will be more likely to accept lower interest rates on their investment.
- Secure the collateral yourself: Don’t depend on a third-party lender to do it for you.
- Get prequalified or preapproved for your loan before beginning negotiations with lenders.
What Determines Hard Money Loan Rates?
Hard money loan rates are determined by several factors, including how long you need the loan for, how much you’re borrowing, and who you’re borrowing from.
Your Lender’s Individual Policies and Interest Rates
Hard money lenders set their interest rates for hard money loans based on various factors. You can shop around to find the best rate for your specific situation, but be aware that the best rates go to the most qualified borrowers.
The Amount of the Loan
Like most loans, hard money loans generally have lower interest rates if they’re for more money. The more you borrow, the cheaper it is to borrow it—that’s because there’s less risk involved in lending you more money than there is in lending you less.
The Type of Borrower (Residential, Commercial)
Generally speaking, hard money loans are easier to get if they’re secured by real estate used as a residence by its owner. That’s because there’s less risk involved in loaning money for a residential home than lending it for a commercial property, which may be or may not be occupied by its owner at any given time.
Hard Money Loan Rates: How They Work
Unlike traditional loans, where your credit score and income are taken into account to determine your interest rate and eligibility, hard Georgia money loans rates depend on the value of the asset you’re using as collateral. The lender will appraise your asset and figure out what percentage of its value they are willing to lend you and how long they’ll allow you to pay it back.
The higher your LTV (loan-to-value ratio) is, the more of your asset’s value a lender is willing to give you in a loan, and the lower the interest rate. That’s because lenders feel less risk in lending you more money against an asset with high value. For example, if your home is appraised at $500K and you owe $300K, then a lender might agree to give you up to 80% LTV ($400K).
Hard Money Closing Costs
Hard money (or private money) loans are a great, viable option for when you need to finance the purchase or refinance of a property. But it’s important to remember that some costs are associated with this form of financing.
Here’s what you need to know about hard money closing costs.
- The lender’s fees: With hard money loans, the lender typically charges several fees in addition to the interest on the loan. These include:
- Application fee: An application fee is charged just for submitting your loan request. This fee can range from $100 to $1000, depending on the lender.
- Processing fee: The processing fee is an administration cost charged by the lender for evaluating and processing your hard money loan request. It typically ranges from $200-$500 and is non-refundable; even if your loan doesn’t close, you’re still responsible for covering this fee.
- Origination fee: The origination fee is charged by a lender as compensation for originating your loan, and it’s usually calculated as a percentage of your total loan amount (typically between 1% and 10%).
- Points: Hard money lenders usually charge one to ten points, paid up-front at closing. One point is equal to one percent of your loan. Points are generally considered a good-faith payment or deposit on your loan.
Hard Georgia money loans are specific types of loans that can be a great option for some borrowers. If you’re thinking about applying for hard money, you’ll want to know the rates and what factors influence those rates. Such critical information can be found in this blog.