Are you about to apply for a hard money loan, and curious about hard money loan rates? We help you prepare in this guide that looks into 2020.
You’ve made the jump and are officially in business using fix and flip loans for houses you’re buying, fixing up, and then selling for a tidy profit. Everything seems straightforward but you want to learn more about hard money loan rates. You have the knowledge, skills, and abilities to do a great job flipping houses.
But you may have realized fairly soon after beginning your business that hard money lenders and hard money loan rates run by their engine. You need to understand how hard money loan rates will work in 2020 as you grow and develop your business. Read on to discover how hard money loan rates work and if their interest rates can be projected for 2020.
The information below may be just the thing you need to go after your business objectives so you can one day sit back and enjoy the fruits of your labor. The below information guide will go over the details and specifics of hard money loans, hard money loan lenders, construction lenders, and how 2020 looks like a great year to start your house fix and flip business.
What is a Hard Money Loan?
When you’re going to apply for a hard money loan, the first thing you need to know besides the loan rate is what is a hard money loan, and how is it defined? If there was ever a perfect marriage, it is the one that exists between hard money loans and a fix and flip real estate projects or businesses. The hard money loan is a perfect fit for house refurbishing because of the loan targets meeting a very specific financial need.
Rehab hard money loans are an almost perfect match for flippers who don’t have good credit but can rehab a house, flip it with a lucrative offer and pay back the hard money loan in a timely manner. While banks focus on your credit or financial history, hard money loan lenders pay more attention to the potential value of the rehabbed house once you flip it. Hard money loan lenders can also give you their approval for a loan in about two or three weeks.
If you’ve ever watched a DIY show on flipping houses after they are refurbished, the bigger names in the business let you know they almost all started with hard money loan lenders to begin their business empire.
Definition of a Hard Money Loan
A hard money loan is a short-term loan that secured with collateral. In the case of a fix and flip loans, it’s secured by real estate. Every hard money loan is funded by a private investor or a group of private investors. Most of these loans are short-term and last about twelve months.
You can ask for a longer repayment time frame, but even that timeframe is only about two to five years. You do have to make monthly interest payments or the interest and a little bit of the principal. But the majority of the principal is paid with a balloon payment at the end of your loan term.
Hard money loan lenders can lend whatever they want to borrowers, but it’s usually an amount that’s equal to the value of the real estate property. Sometimes it’s the borrower’s own residence that’s used as collateral, and sometimes its a fix and flip property.
2019 Hard Money Loan Rates
The current hard money loan rates in 2019 have ranged from 7.5 percent to 15 percent. Hard money loan lenders have the option to charge points on your loan, as well. Points are sometimes called origination fees that cover the administrative costs of the loan and helps mitigate any risk or hit the lender may incur.
You need to remember that one point is equal to one percent of the loan. In a hard money loan, points average between two to ten percent of the entire loan. You have to pay this one time upfront with every hard money loan you initiate. When you pay interest, you only have to pay it through your monthly installment amount.
In today’s market, this means your hard money loan is about ten percent higher than any conventional counterpart. But, if you’re using the hard money loan for a fix and flip property, the hard money loan is an amazing and beneficial tool to help you build your real estate portfolio.
The Four Criteria that Affect Hard Money Loan Rates
The American Association of Private Lenders estimates hard money loans are up to forty percent since 2016. It’s estimated that in 2019, there are over 8,000 hard money loan lending organizations or companies. According to Zillow the average home prices in the United States is around $227,700.
There’s no doubt the average cost is affected by where the home is located, its size, how good of shape the home is in, and a variety of other factors. These factors play roles in what the interest rate is and will be in the near future.
#1 – Go Where The Money Lives
It may not be fair, but it is true. If you want to find a group of hard money lenders, you have to go to markets where there’s a greater supply of money to lend. California has plenty of lands, plenty of very wealthy people, and a market of hard money lenders that seems endless.
#2 – Where is the Location of Your Real Estate Property
This is another factor that might not be fair, but it is a truth. That is hard money loan lenders like to be in mortgage states vs. deed of trust states. A deed of trust state has lenders that can foreclose in a trustee sale, which in turn gives lower interest rates. Lenders give you lower interest rates on a hard money loan because it’s easier for them to access what you put up as collateral if you default on your loan.
Mortgage states require hard money lenders to go through a judicial foreclosure process, which takes time, effort, and money.
#3 Are You Vested in The Success of The Property Selling For a Profit?
The amount you borrow in a hard money loan needs to be as close to the property’s current or future value as possible. The closer your loan is to the value of your fix and flip property, the lower the interest rates. In almost all financial services, lenders want to see you have a vested interest in making sure you’re committed to making the property a successful financial venture when it’s put it for sale.
#4 – Underwriting Criteria
The harder the underwriting process is, with its countless tax returns, financial statements, paycheck stubs, etc., the lower your interest rate. Hard money loans usually don’t check your credit score, or if they do, it’s not necessarily used when they approve your loan. Hard money lenders are interested in asset-based loans.
An asset-based loan is one in which you use your home or a piece of real estate as your collateral for the loan. The hard money loan lender has all they’ll ever need when they give you the money because if you default in paying them back, they can take your property in place of you paying them.
Hard Money Loan Rates for 2020
Hard money loans aren’t going anywhere due to the sheer volume of lenders that keep growing every year. Interest rates will continue to be dictated by supply and demand, as is most everything in a capitalistic economy. The four factors listed above will also influence the money loan rates for 2020.
The sales of homes that were resold within twelve months of being purchased are over seven percent of all transactions that occurred in real estate in 2019. You need to make sure you don’t flip your home too fast for too little. You also don’t want to pay too much for a home and then spend more on the refurbishment costs than you budgeted.
Your ideal purchase price should be applied in the same manner when you go to list your property, so you have optimized whatever profit you can make when the house sells. On average, most fix and flip borrowers make about ten-fifteen percent on the sale of their properties.
The Facts Behind Loan Rates For 2020
Most loans, including bridge loans or hard money lending loan interest rates, range depending on the highest loan-to-value (LTV) ratios. The ranges projected for the end of 2019 and the beginning of 2020 are as follows:
- Your average rate is 9.00% – 13.00% if you have an LTV ratio of 80% – 90% with a typical minimum loan of 1 million dollars with a one-year repayment timeframe
- In some instances a hard money loan average interest rate can be as high as 10% – 20% if you have an LTV ratio of 50%-55% with a typical minimum loan of $150,000 with a two-year repayment timeframe
The LTV rate, interest rates, and other figures listed above are projected but not guaranteed. There’s no way to know what the market will or won’t bear based on the economy you can’t see yet. Many financial analysts are stating 2020 may be one of the strongest supply and demand home markets in over ten years.
Your Next Step
When you’re ready to launch your future, you have to take the first step. We have the web-page where you can seek more information on the hard money lender pool. You’ll also find information about hard money loan rates, fix and flip loans that provide targeting details so you can create and grow a fix and flip business. Your construction lender is one web-click away, so reach out to start your future today.