Are you considering a hard money loan? Charlotte’s market presents many opportunities for investors and homeowners alike. Whether you’re eyeing a fixer-upper in Plaza Midwood or a rental property in NoDa, knowing how hard money loans work can be important. In this guide, we’ll explore the ins and outs of hard money loans, helping you make informed decisions for your real estate ventures in Charlotte.
Hard money loans offer a unique solution for those who need fast funding or have difficulty securing traditional financing. These loans can be a game-changer, as they focus on the property’s value rather than the borrower’s credit score.
Let’s dive into the specifics of hard money loans and how they can benefit you in the Charlotte market.
Start Making Offers Without Waiting to Sell Your Home
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
What is a hard money lender?
A hard money lender provides short-term loans secured by real estate, typically used by house flippers and real estate investors. Unlike traditional lenders, hard money lenders base their loan amounts on the after-repair value (ARV) of the property. ARV is the estimated value of a property after renovations and improvements are completed.
Hard money loans come with higher interest rates and fees compared to conventional loans, reflecting the increased risk for lenders. If a borrower fails to repay the loan, the lender can foreclose on the property to recoup their investment.
This type of financing is often a lifeline for those who need quick funding or have been turned down by traditional lenders due to credit score issues or other financial constraints.
Additional costs can include origination fees, closing costs, and points, which are a percentage of the loan amount paid upfront.
How does a hard money loan work?
Hard money loans in Charlotte offer flexible, fast funding options for real estate investors. Here’s what you need to know:
- Short-term loan: Hard money loans are typically short-term, lasting between 1 to 3 years, unlike the 30-year terms of traditional mortgages.
- Faster funding option: These loans can be processed and funded much quicker, often within a week, compared to the 30 to 50 days it takes for conventional loans.
- Less focus on creditworthiness: Hard money lenders prioritize the property’s value and potential over the borrower’s credit score.
- More focus on property value: The loan amount is based on the loan-to-value ratio (LTV), which considers the property’s current and ARV.
- Not traditional lenders: These loans are offered by private investors or companies, not traditional banks.
- Loan denial option: Lenders can deny loans based on property value assessments, not just borrower history.
- Higher interest rates: Interest rates for hard money loans range from 8% to 15%, significantly higher than conventional loans.
- Might require larger down payments: Borrowers often need to make down payments of 20%–30% to secure the loan.
- More flexibility: Lenders have more flexibility in terms and conditions, making it easier to negotiate favorable loan terms.
- Potential for interest-only payments: Borrowers may have the option for interest-only payments during the loan term, reducing monthly expenses.
What are hard money loans used for?
Hard money loans can be versatile financial tools for various real estate needs:
- Flipping a house: For those involved in flipping homes, hard money loans provide quick access to capital for purchasing and renovating properties.
- Buying an investment rental property: Investors can secure rental properties quickly, leveraging the property’s future income potential.
- Purchasing commercial real estate: These loans can facilitate the acquisition of commercial properties, enabling investors to capitalize on business opportunities.
- Borrowers who can’t qualify for traditional loans: Individuals with poor credit or unconventional financial situations can still obtain funding through hard money loans.
- Homeowners facing foreclosure: Those facing foreclosure can use hard money loans to pay off debts and avoid losing their property.
How much do hard money loans cost?
Hard money loans generally cost more than traditional loans due to the higher risk for lenders and the convenience of quick, flexible funding. Typical costs include:
Online calculators can help estimate these costs.
Alternatives to working with hard money lenders
If you’re a homeowner or investor looking for funding options beyond hard money loans, consider these alternatives:
- Take out a second mortgage: A home equity loan or HELOC can provide funds at lower interest rates.
- Cash-out refinance: This allows you to refinance an existing property, pulling out cash to finance new investments.
- Borrow from family or friends: Personal loans from family or friends can offer flexible terms and potentially lower or no interest rates.
- Use a government-backed loan program: Programs offered by the FHA, VA, or USDA can assist in purchasing homes with lower down payments and reduced interest rates.
- Peer-to-peer loan: These loans are provided by individual investors through lending platforms, functioning similarly to hard money loans but often with different terms.
- Specialized loan programs: Consider specialized loans for fixer-uppers or investment property refinancing if you already have a hard money loan and seek to replace it.
- Request a seller financing option: In some cases, sellers may agree to finance the purchase themselves, which can result in lower closing costs and less stringent eligibility requirements.
How to buy before you sell
HomeLight’s Buy Before You Sell program offers a unique solution for homeowners looking to buy a new home before selling your current one. This program allows you to secure your next home without the pressure of selling first. Here’s how it works:
- Get approved: HomeLight will assess your financial situation and home equity to approve you for the program.
- Buy your new home: With HomeLight’s backing, you can purchase your new home confidently.
- Move in: Once you have your new home, you can move in at your own pace.
- Sell your old home: HomeLight will assist in selling your previous home, aiming for the best possible price.
The benefits include avoiding the stress of double moves and temporary housing, as well as the potential to sell your old home at a higher price. The program’s cost ranges from 9.5% to 12% of the loan amount, offering a competitive alternative to traditional bridge loans.
Here’s how HomeLight Buy Before You Sell works:
Although there’s a flat fee of 2.4% of your current home’s sold price, the potential savings you could see in other areas might outweigh the cost. For example, you might save on moving expenses, temporary housing, and even the final purchase price of your new home.
3 top hard money lenders in Charlotte
Peak Financial Group
Peak Financial Group, located in Historic Southend, Charlotte, was founded in September 2011. It offers a range of mortgage solutions, including residential, commercial, and refinancing loans.
Lending clientele: Real estate investors and homebuyers
Loan criteria: Up to 80% LTV – SBA lending up to 90% in some scenarios
Peak Financial Group has a Google rating of 5.0 based on more than 70 reviews. Customers highlight their personalized attention, professionalism, and detailed communication.
Loan Mountain Capital
Loan Mountain Capital, based in Charlotte, NC, was founded by builders and real estate investors. It offers hard money loan programs tailored for these groups. The company’s loans can close as quickly as 24 hours, ensuring funds are ready at closing and draw payments are made on time to keep projects on track.
Lending clientele: Real estate investors and builders
Loan criteria: Private loans from $50K-$1.5M
Loan Mountain Capital, based in Charlotte, NC, has a Google rating of 5.0 based on more than 20 reviews. Customers highlight their speed, customer service, and professionalism.
Straightline Funding
Straightline Funding, based in Charlotte, NC, was founded in 2006. It offers a variety of loan programs for real estate investors, including rehab loans, transactional funding, bridge loans, new construction loans, and DSCR rental loans.
Lending clientele: Real estate investors
Loan criteria: Up to 75% of ARV
Straightline Funding has a Google rating of 4.6. Customers highlight their professionalism, communication, and expertise.
Investing in real estate?
Hire an investor-friendly real estate agent who can help you get access to off-market properties at a discount and assess potential rental income based on market trends. HomeLight can connect you with investment property specialists at no cost.
Should I partner with a hard money lender in Charlotte?
Choosing a hard money loan can be a good move depending on your real estate goals. Here’s a summary to help you decide:
- Best for real estate investors: Hard money loans are ideal for investors needing quick access to funds or facing challenges with traditional financing.
- Quick access to capital: These loans enable investors to act swiftly on opportunities in Charlotte’s competitive market.
- Focus on property value: Lenders prioritize the property’s potential value over the borrower’s credit score.
Alternatively, if you’re a homeowner looking to leverage your home equity, consider HomeLight’s Buy Before You Sell program. This program allows you to buy a new home before selling your current one, providing a seamless transition and avoiding the stress of double moves.
As with any major financial decision, consider your long-term strategy and consult with a financial advisor to make sure it aligns with your overall investment goals.
If you want to connect with investor-friendly real estate agents in Charlotte who have access to trusted hard money lenders, let HomeLight introduce you to top professionals in your area who fit that criteria.
Header Image Source: (Daniel Weiss / Unsplash)
English (US) · 