Iowa’s real estate market is full of opportunities, but securing funding quickly can be challenging. Enter hard money loans, a popular solution for investors looking to capitalize on the market’s potential. Whether flipping a historic home in Des Moines or buying an investment property in Cedar Rapids, understanding the ins and outs of hard money lending is important for making informed financial decisions.
Hard money loans offer a faster, more flexible alternative to traditional financing, ideal for those needing quick capital access.
These loans are best for real estate investors in Iowa, allowing them to leverage property value rather than relying on their credit score. Let’s dive into what hard money lending entails and how it can be a game-changer for your real estate investments in the Hawkeye State.
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.
Editor’s note: This post is for educational purposes and is not intended to be construed as financial advice. HomeLight always encourages you to consult your own advisor.
What is a hard money lender?
A hard money lender is a private investor or company that provides short-term loans secured by real estate. They typically work with clients such as house flippers, developers, and investors who need quick access to capital. Instead of focusing on the borrower’s creditworthiness, hard money lenders determine loan amounts based on the after-repair value (ARV) of the property, which is the estimated value after renovations.
Interest rates for hard money loans are usually higher than traditional loans due to the increased risk, ranging from 8% to 15%.
Borrowers are also responsible for origination fees, which typically range from 1% to 5% of the loan amount. If a borrower fails to repay the loan, the lender can foreclose on the property, making it essential for borrowers to have a solid exit strategy. These loans offer flexibility and speed but come with higher costs and risks.
How does a hard money loan work?
Hard money loans in Iowa operate uniquely compared to traditional financing methods. Here’s what you need to know:
- Short-term loan: Hard money loans are typically for 6 months to a few years, much shorter than the standard 30-year mortgage.
- Faster funding option: These loans can be approved and funded in a matter of days, a stark contrast to the typical 30 to 50 days needed for traditional loans.
- Less focus on creditworthiness: Unlike traditional lenders, hard money lenders put less emphasis on the borrower’s credit score.
- More focus on property value: The primary concern is the property’s value, especially its loan-to-value ratio (LTV).
- Not traditional lenders: Hard money lenders are usually private individuals or companies, not banks or credit unions.
- Loan denial option: If the property’s value doesn’t meet the lender’s criteria, they may deny the loan.
- Higher interest rates: Interest rates on hard money loans are higher, often ranging from 8% to 15%, reflecting the increased risk.
- Might require larger down payments: Borrowers might need to put down a substantial amount, often between 20%–30% of the property’s value.
- More flexibility: These loans offer more flexible terms and conditions compared to traditional loans.
- Potential for interest-only payments: Some lenders allow for interest-only payments, reducing initial monthly costs but requiring full principal repayment at loan maturity.
What are hard money loans used for?
Hard money loans are versatile and can be used for various real estate ventures:
- Flipping a house: Investors use hard money loans to purchase and renovate properties quickly for resale at a profit. Flipping homes can yield significant returns if done correctly.
- Buying an investment rental property: These loans can finance the purchase and renovation of rental properties, helping investors generate ongoing rental income.
- Purchasing commercial real estate: Investors might use hard money loans to acquire and develop commercial properties, seizing opportunities by taking advantage of the fast funding process.
- Borrowers who can’t qualify for traditional loans: Hard money loans are an option for those who struggle to meet traditional lenders’ stringent criteria due to credit issues or other financial hurdles.
- Homeowners facing foreclosure: Homeowners in foreclosure might use hard money loans to refinance and protect their home from being sold at auction.
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 looking to leverage your home’s equity, consider these alternatives:
- Take out a second mortgage: A home equity loan or HELOC can provide needed funds at a lower interest rate.
- Cash-out refinance: Refinance an existing property, pulling out cash to finance your new investment. It often comes with lower interest rates than hard money loans.
- Borrow from family or friends: A personal loan from family or friends can offer flexible repayment 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: If you already have a hard money loan and want to replace it, consider specialized loans for fixer-uppers or investment property refinancing.
- Request a seller financing option: In some cases, sellers may agree to finance the purchase themselves, resulting in lower closing costs and less stringent eligibility requirements.
How to buy before you sell
HomeLight’s Buy Before You Sell program allows you to buy a new home before selling your current one. This program provides the funds needed to purchase a new home, eliminating the stress of timing your sale perfectly. By leveraging your current home’s equity, you can make a non-contingent offer on your next home, making you a more competitive buyer.
The Buy Before You Sell (BBYS) program allows you to leverage the equity in your existing home to make a stronger, non-contingent offer on a new property. If your home qualifies, you can get your equity unlock amount approved in 24 hours or less, with no cost or commitment required. Once approved, you can confidently purchase your next home and then sell your current one vacant, avoiding the hassle of moving twice.
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. On top of that, HomeLight’s BBYS fees are typically much lower than the interest rates on bridge loans, which currently range from 9.5% to 12%.
3 top hard money lenders in Iowa
Traditional lenders might not be the solution for every real estate investment. If you’re looking to move quickly and capitalize on an opportunity, explore the hard money lending options available in Iowa.
Lima One Capital, Iowa
Based in South Carolina, Lima One Capital offers hard money loans to real estate investors nationwide, including Iowa. They have funded over $9 billion across 28,000 projects, with loan programs for fix-and-flip/bridge, new construction, rental, short-term rental, and multi-family properties.
Lending clientele: Residential, commercial, and development investors
Loan criteria: LTV varies by loan program: up to 75% for fix-and-flip, 80% for bridge, 70% for new construction, 80% for rental, and 70%-75% for short-term rental.
Lima One Capital has a 4-star rating on Google from nearly 200 reviews.
Wildcat Lending, Iowa
Based in Plano, Texas, Wildcat Lending specializes in hard money loans for real estate investors, including fix-and-flip, rental property, and Wildcat Zero loans, which cover origination fees. They operate in multiple states, including Iowa, and can close loans in under a week, sometimes within hours.
Lending clientele: Residential real estate investors (properties with 1-4 units)
Loan criteria: Up To 95% LTC | 70% LTV
Wildcat Lending has a 4.8-star rating on Google from over 160 reviews.
LendingOne, Iowa
LendingOne, located in Florida, is a private money lender that offers short-term mortgage loans for real estate investors with properties across Iowa.=
Lending clientele: Residential real estate investors
Loan criteria: Loan terms can vary: Fix-and-flip loan rates range from 7.49% to 12.9%, with up to 75% ARV
LendingOne has a 4.2-star Google rating from hundreds of reviews and has held an A+ BBB accreditation since 2017.
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 Iowa?
Determining if a hard money loan is right for you means considering your financial goals and the specific needs of your project. Here’s a breakdown to help you decide:
- Best for real estate investors: Hard money loans are ideal for investors needing quick capital for short-term projects like flipping homes or buying rental properties. These loans offer speed and flexibility but come with higher interest rates and fees.
- Alternative for homeowners: If you’re a homeowner looking to leverage your equity without high costs, consider HomeLight’s Buy Before You Sell program. This option allows you to buy a new home before selling your current one, providing a smooth transition and competitive rates.
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