A hard money lender provides short-term loans backed by real estate rather than the borrower’s credit score. Typically, their clients are house flippers or individuals investing in rental properties. Instead of relying on traditional metrics, hard money lenders determine the loan amount based on the after-repair value (ARV) of a property. ARV is the estimated value of a property after renovations are complete.
Because hard money loans carry more risk for lenders, they typically come with higher interest rates and fees. If a borrower fails to repay the loan, the lender can take ownership of the property. This makes it important for borrowers to fully understand the terms and costs before moving forward.
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 provides short-term loans backed by real estate rather than the borrower’s credit score. Typically, their clients are house flippers or individuals investing in rental properties. Instead of relying on traditional metrics, hard money lenders determine the loan amount based on the after-repair value (ARV) of a property. ARV is the estimated value of a property after renovations are complete.
Because hard money loans carry more risk for lenders, they typically come with higher interest rates and fees. If a borrower fails to repay the loan, the lender can take ownership of the property. This makes it essential for borrowers to fully understand the terms and costs involved before moving forward.
How does a hard money loan work?
Hard money loans operate differently from traditional loans, offering flexibility and speed for real estate investors in Portland. Here’s a breakdown of how they work and what you can expect when securing a hard money loan in Portland:
- Short-term loan: Hard money loans are typically designed for short durations, often ranging from six months to two years. This allows investors to complete projects quickly without long-term commitments, unlike 30-year traditional mortgages.
- Faster funding option: These loans can be approved and funded much quicker, often within days instead of the 30 to 50 days that traditional lenders require.
- Less focus on creditworthiness: Unlike traditional lenders who scrutinize your credit score, hard money lenders prioritize the property’s potential, which can make borrowing more accessible to investors with imperfect credit.
- More focus on property value: Lenders base the loan on the loan-to-value ratio of the property and its after-repair value (ARV), rather than your personal financial history.
- Not traditional lenders: Hard money lenders are private individuals or companies, not banks. This difference gives them more leeway in approving loans, especially for unconventional real estate deals.
- Loan denial option: Although they’re more flexible, hard money lenders may still deny a loan if they believe the property or project is too risky.
- Higher interest rates: Expect higher interest rates—typically ranging from 8% to 15%—since lenders take on more risk compared to traditional mortgages.
- Might require larger down payments: Hard money lenders often ask for down payments of 20%–30%, depending on the loan and property.
- More flexibility: These lenders offer greater flexibility in structuring loan terms, making them ideal for investors with unique needs or complex deals.
- Potential for interest-only payments: In some cases, lenders may allow interest-only payments for the loan’s duration, delaying the repayment of principal until the loan term ends.
What are hard money loans used for?
Hard money loans are versatile financial tools that can serve many different real estate investment purposes. Below are some common scenarios where these loans come into play:
- Flipping a house: Investors often use hard money loans to fund flipping homes, where quick financing is needed to purchase and renovate properties for a fast sale.
- Buying an investment rental property: For those purchasing rental properties, hard money loans can provide the capital needed to secure and rehab units, getting them rent-ready.
- Purchasing commercial real estate: Investors in commercial real estate can leverage hard money loans to close deals quickly, which is often crucial in competitive markets.
- Borrowers who can’t qualify for traditional loans: Hard money loans can be a lifeline for borrowers who don’t meet the stringent requirements of traditional lenders, providing access to funds when other options aren’t available.
- Homeowners facing foreclosure: These loans can be used to prevent a foreclosure, allowing homeowners to refinance their home quickly and avoid losing their property.
How much do hard money loans cost?
Hard money loans generally come with higher costs due to the increased risk and speed of funding. Here’s a breakdown of the typical costs:
- Interest rates: These typically range from 8% to 15% or more, depending on the lender’s risk assessment and the specifics of the project.
- Origination fees: Lenders often charge 1% to 5% of the loan amount upfront as a fee for processing and approving the loan.
- Closing costs: These fees, which may include legal, appraisal, and administrative costs, are often higher than traditional loans and vary by lender and property type.
- Points: Lenders might charge points, which is a percentage of the loan amount, as part of the cost. Points typically range from 2% to 5%.
Online calculators can help estimate these costs.
Alternatives to working with hard money lenders
If a hard money loan doesn’t seem like the right fit for your situation, here are some alternative financing options:
- Take out a second mortgage: With substantial equity in your home, a home equity loan or HELOC could offer lower interest rates than hard money loans.
- Cash-out refinance: This option lets you refinance your existing property, pulling out cash to finance your next investment, often at a lower interest rate.
- Borrow from family or friends: This can provide more flexible repayment terms, and may involve little or no interest, making it a more affordable option than hard money loans.
- Use a government-backed loan program: Programs like the FHA, VA, or USDA loans may provide lower down payments and reduced interest rates.
- Peer-to-peer loan: These loans are issued by individual investors via lending platforms. They offer terms similar to hard money loans, but sometimes with more favorable rates.
- Specialized loan programs: Consider loans tailored for fixer-uppers or investment properties. These can replace a hard money loan if you already have one or need to refinance.
- Request a seller financing option: In some cases, sellers may offer to finance the purchase themselves, resulting in lower closing costs and more flexible terms.
How to buy before you sell
HomeLight’s Buy Before You Sell program is a game-changer for homeowners in Portland looking to buy a new home before selling their current one. This program allows you to make a strong offer on your next property without waiting for your current home to sell. With HomeLight’s program, you’ll avoid the stress of juggling two mortgages or rushing the sale of your current home.
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:
Once your new home is secured, HomeLight works with you to prep and sell your old property at its best price, all while covering costs upfront. The program’s benefits include buying a new home before selling your current one, securing a great price for your existing home, and avoiding the 9.5% to 12% bridge loan rates typically associated with similar programs.
3 top hard money lenders in Portland
Traditional lenders might not be the solution for every real estate investment. If you want to move quickly and capitalize on an opportunity, explore the hard money lending options in Portland.
Northwest Private Lending
Northwest Private Lending offers hard money loan options for various clients, including house flippers or those looking to purchase properties not conventionally financeable. They specialize in Bridge Loans, fix-and-flip, and fix-and-hold projects.
Lending clientele: Real estate investors
Loan criteria:
80% Max LTV of the purchase price on a fix and flip
75% or lower LTV of the purchase of an investment property
70% or lower LTV of the refinance of an investment property
50% LTV of the purchase or refinance of bare land
100% LTV loans available with additional collateral / cross-collateralization of other investment properties.
Northwest Private Lending has a Google rating 5.0 based on more than 60 reviews. Customers highlight their professionalism, responsiveness, and exceptional service. The company also holds an A+ rating from the Better Business Bureau.
Cetan Funds
Cetan Funds offers hard money loan programs for various needs, including residential construction, fix-and-flip rehabs, and commercial projects. Their loans can close in as few as seven days, with tailored terms to fit each borrower’s needs.
Lending clientele: Real estate investors
Loan criteria: Up to 70-75% of the ARV
Cetan Funds has a Google rating of 4.8 based on more than 20 reviews. Customers highlight their local market expertise, clear communication, and quick-draw payments.
Denali Commercial Mortgage
Denali Commercial Mortgage, based in Portland, offers competitive business, investment, and private lending programs, including SBA 504, SBA 7a, and USDA loans. They specialize in hard-to-place loans and provide expert assistance in navigating complex lending scenarios.
Lending clientele: Real estate investors
Loan criteria: Up to 75% LTV
Denali Commercial Mortgage holds a Google rating of 4.9 based on more than 20 reviews. Clients commend Eric Greco for his dedication, problem-solving skills, and prompt service.
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 Portland?
The decision to use a hard money lender in Portland should be based on your individual situation and real estate investment goals.
However, for homeowners looking to leverage their equity, consider HomeLight’s Buy Before You Sell program instead. It offers a more manageable solution without the high interest rates and fees that typically come with hard money loans. For more guidance on real estate investments in Portland, HomeLight is here to help you make informed decisions tailored to your needs.
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’re looking to connect with investor-friendly real estate agents in Portland 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: (Chris Orcutt / Unsplash)
English (US) · 