Hard Money Lenders Explained - How To Properly Find & Utilize Them

Many people have misconceptions about hard money lenders. We’re going over what exactly they are and why they’re important.

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When I became a Realtor in 2010, I had never heard of hard money lending in my life. I thought if you wanted to buy a home you had to get a 30 year loan with a big bank or pay cash. I never realized there were so many other ways such as hard money and seller financing. Because of that, I never attempted to flip houses because I couldn’t qualify for 30 year loans and I didn’t have cash.

Once I learned about hard money lending, that all changed. I immediately started finding deals and getting hard money loans to do my first flips. Fast forward to today and we still utilize hard money lenders.

The first thing to know about them is that they’re much different than traditional banks. They care more about the deal than they do the borrower. A traditional bank cares more about the borrower than they do the deal. In a hard money lender’s point of view, if you default on a good deal, they’re going to get a really nice property.

The benefits of hard money lending include quick financing in typically 7-10 days. This makes it able to compete and be almost the same as cash. They will also fund as many good deals as you can bring to the table as long as you can cover the down payment and interest payments.

The downside is they’re extremely expensive. Typical interest rates range from 9-12% with points. Points are an upfront fee that is immediately paid to the lender. One point would equal 1% of the loan amount. Also, hard money loans are typically only 6-12 months long. Though the costs are higher, as long as you account for them in your offer then you will be fine.

If you’re looking for a hard money lender the best place is Google. You can search for national and local lenders. National ones will be cheaper but more strict. Local ones will be more expensive but have more flexibility. It really depends on what you’re looking for.

Hard money is a great tool for house flippers. Most people doing volume use them to help scale their house flipping business.

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[anhrestuarant]

If you change a billion lives, that's the formula to becoming a billionaire. Loaning, adding, giving, sharing, providing value creates wealth - of mind, heart, soul and yes, finances but it starts with the value you give. Love it

[XOAliciaMarie]

Hard Money Mortgage Professional here giving my 2 cents…. The biggest advantage for investors to use hard money lenders to purchase or refinance real estate is that you actually don’t go through the process of traditional lending.

You don’t have to conform to Fannie Mae and Freddie Mac guidelines which means no one cares if you have a job!

What they care about is your credit score…. Reserves, the asset etc

Keep in mind, though, even though hard money lending doesn’t care about your DTI… Your DTI is tied to your credit score !

There have been many times where I have to tell Investor to go pay off some credit cards so we can do a rescore so that their credit score go up.

Either they’re on the borderline of qualifying, or they want to get into the next interest rate bracket for a lower interest rate.

Even though you’re paying more in interest rate, you have to remember that your Mortgage is still getting paid by the profits you will be making renting that property either as a long-term rental for regular people… Or a vacation rental home such as an Airbnb.

But you’re gonna close so much faster and you get to skip a lot of the formalities that you would have to go through if you tried to buy that same property through traditional lending practices .

Time is money for these investors, so yes, a lot of them are willing to pay a higher interest-rate to close the loan faster

So they can be closed on the property to then fix and flip it to either sell it or put a renter in it as fast as possible .

Remember, real estate is an industry where it’s not all about getting the lowest interest rate in spending the least amount of money…

Most of the time you have to pay to play! Real estate deals move fast. This is why it’s the fastest way to wealth building.

[tysoneye]

I have a question, if I use hard money to purchase a house and then fix it up, then I want to rent it out, can I switch to a conventional mortgage or business loan so that I can have a long term so that i can take profit on it every month and still be in debt? Also will I need a down payment or can I just put the house as collateral because I’d only refinance to what I lended before, which would hopefully be below the market value

[mellymel]

This guys hair doesn’t move & is always on point! Lol

[BenGarseeya]

Thanks for this video Ryan. Needed this info! Just flipped our first home! Should close at the end of the month

[Justsayingthat]

Wish I understood hard lenders sooner. Thanks!

[matthewhetrick]

Thanks for the guidance Ryan. You laid it out very clearly and helped me gauge what I should expect for points and interest.

[dmyles]

Do you pay the monthly interest out of your own pocket month over month or do you pay this at the end of the project once the property sells

[javierhumbria]

Simple! Even though it is at a high level, this is the best video I've seen about Hard Money! 🔥👍

[tonybell]

The biggest issue for me would be making those monthly payments while flipping

[jakethehitman-]

Explained it in layman terms superb bravo

[harambee]

Dude ... your giving such good information and your straight forward and very clear I love your channel

[seanlovesrealestate]

Awesome breakdown Ryan. Hard money loans are pricey, but they enable investors to do the deal in the first place! And like you mentioned, the more deals you do, the better your rates will be. I've been shocked at how low our rates have been for our top tier clients 🤣. Too bad we don't lend in Vegas, otherwise, I'd hook you up 👍

[davidstockard]

“Where are these points coming from?”I asked myself the same thing when I started this journey!

[thewongmindset]

Great info on hard money....Didn’t even know you could just google that 😂 Checking out those national ones first 👍

[nicnico]

Can you do a video breakdown on HML with the full calculation formula with points, %, interest, payment, etc; in order for one to know if it is a bad or good deal

[nursechriswright]

Great video. Question... is the interest on a hard money loan tax deductible if it's an investment property?

[justinturner]

Thanks man! Glad to be a future OG to your channel. Your channel will go places 👊😎

[MickeyCTejas]

The high 2% interest rates ahh the good ol' days in interest! :-(

[KevinSmith-ozoz]

Great vid and advice. Is the interest rate over the course of 6 months? 10-12 % then spread over the 6 month duration. Did you do a video about missed payments, and just no payment at all. Whats the legality of the property they are flipping and their obligation with me. Can i put a lien on the property? Civil Court? Also did you do a video on paperwork and contracts to include all the above? Tax obligations? And if so, should i create an LLC. Insurance?