Hard money loans are a type of financing typically used to provide funds for real estate investors when they cannot acquire any loans from traditional lenders due to a poor credit score or failing to meet the set terms and conditions. Do hard money lenders require down payment when offering loans to investors? No!

Unlike other traditional bank lenders and other financial institutions, one receives the full amount of loan applied for without having to incur any deductions.  

However, many investors have a difficult time choosing a hard money lender since different lenders are specialized in different loan types. Other investors may lose good deals due to low financial status. 

Hard money lenders offer loans depending on the value and profitability potential of your property. Failure to do your repayment on time will make the lender sell your property, earn a profit, and use the cash for your loan payment.  

Difference Between Hard Money Loans and Traditional Loans 

Traditional loans are loans offered by banks and other financial institutions at local and national banks in a country. Below are differences between hard money loans and traditional loans: 

Funds from hard money lenders are meant to finance investors for a short-term timeline while traditional loans are used to fund self-occupied assets. 

Hard money loans carry a high interest of up to 10% and even higher which is cumbersome compared to the traditional loan interests. Traditional loans have fair and affordable loan interests. 

Hard money loans use the investor’s property as collateral while traditional loans use the property as well as the borrower’s credit as security.  

Traditional loans have terms that go up to 3o years while hard money loan terms last up to 6-18 months. 

Make sure you consider the differences above when selecting a source of finance for your real estate investment today. 

Difference Between Hard Money Lenders and Other Lending Sources 

The key difference between hard money lending and other lending types is that this form of money lending does not focus on the borrower’s credit score and history or revenue as the collateral of the loan. Instead, lenders will place all their attention on the property’s value while focusing on the After Repair Value. These differences include: 

Hard money loans are meant to serve a short-term purpose. After applying, being approved, and being granted the hard money loan, one can take a maximum period of one to three years while one can take fifteen to thirty years when paying for their traditional loans. 

Hard money loan lenders have established lending criteria that they implement from one borrower to another. Private lenders such as a colleague, family member as well as your friends may lack preset criteria before offering you the hard money thus giving the borrower a chance to negotiate and adjust the loan terms to be favorable. 

On the other hand, lenders may come up with set terms defining loan length, loan interest, and even upfront points for the overall loan repayment.  

Hard money lenders do not fund any primary residential property since the owner-occupied property is subjected to a number of set rules and regulations thus increasing the number of risk lenders can go through. 

Unlike other lenders, hard money lenders use their self-provided capital to offer financial assistance to investors who are looking forward to funding their forthcoming project or make an acquisition. 

How Hard Money Lending Works 

Hard money lenders are individuals or private companies that follow their own criteria and terms of loans to offer financial support to enthusiastic investors who are working every day to make their investment offers better. 

Ranging from the loan repayment period to different interest rates, loan terms vary from one lender to another. Do hard money lenders require down payment? Unlike other traditional lenders at your local residence, hard money lenders do not ask for a down payment before disbursing the cash to the respective real estate investor. 

However, very few hard money lenders require their borrower to pay a small percentage of the overall price of your property as the origination fee. Here are a few steps to generally explain to you how hard money lending works: 

Step 1 

Look for a hard money lender around your local area by asking your fellow investors for referrals to experienced and trusted hard money lenders. Don’t let the loan rejection from the traditional loan lenders drive your passion away. All you have to do is find a hard money lender, fully check them out before planning to meet them upfront.  

Step 2 

Arrange an upfront meeting with your hard money lender to inquire about their kind of loan lending specialization, loan terms, and even their hard money lending experience to know if they are favorable to your borrowing offer.  

Step 3 

Prepare the deal by offering a financially promising investment that will leave your hard money lender no option other than to cope up and give you a hand. 

Step 4 

Let your hard money lender know your property’s After Repair Value to determine the amount of cash they are going to offer.  Considering the value of one’s real estate property, the lenders usually offer 60-70% of your asset’s ARV while the rest is let upon the borrower. Investors with thirty or forty percent at hand will be in a better position of acquiring the loan fund.  

Step 5 

Appraisal of your Real estate property whereby the lender either sends a list of appraisals that they trust and prepare your documentation.  

Step 6 

Wait for the hard money lender’s approval as you consult a lawyer just to make sure you’re under legal protection.  

Step 7 

Closing the loan is usually the final step of your loan application process. It is usually done in a lawyer’s office or at title companies to make sure everything is on the right track.  

You could also read about hard money loan requirements.

Do Hard Money Lenders Require Down Payment? – Conclusion

Do hard money lenders require down payment from their borrowers? Typically, hard money lenders are known for their relatively higher interest rates and no down payment. However, some lenders ask for down payment paid as origination fees but they usually consider fairer interest rates for their borrowers.

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