Hard money lenders offer a fast, flexible financing option for Raleigh investors who need quick access to capital. Whether you’re planning to flip a home in Five Points or invest in a rental property near North Hills, knowing how hard money loans work can help you make an informed decision and secure the funds you need.
In this guide, we’ll cover everything from what a hard money lender is to how these loans work, specifically in Raleigh. We’ll also discuss the costs involved, alternative financing options, and highlight some of the top hard money lenders in the area.
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, asset-based loans primarily used for real estate investments. These lenders typically work with clients such as house flippers, real estate developers, and rental property investors. Unlike traditional lenders, hard money lenders base their loan amounts on the property’s after-repair value (ARV), which is the estimated value of the property once renovations are complete.
Interest rates for hard money loans tend to be higher, ranging from 8% to 15%, reflecting the increased risk for lenders. Borrowers may also face origination fees, closing costs, and points.
If a borrower fails to repay the loan, the lender can foreclose on the property, selling it to recoup the investment. This type of loan is ideal for those who need quick, flexible financing and have a solid plan for property improvement and resale.
Hard money loans typically have shorter repayment periods, usually 6 to 24 months. Additional costs can include origination fees, closing costs, and points, which is a percentage of the loan amount paid upfront.
How does a hard money loan work?
If you’re a real estate investor looking for a financing option that provides speed and flexibility, connecting with hard money lenders in Raleigh could be beneficial. Here’s a quick rundown of how hard money loans work:
- Short-term loan: These loans usually have a repayment period of 6–24 months, unlike the 15- or 30-year terms of conventional mortgages. Some lenders may extend the term up to 36 months if needed.
- Faster funding option: When you need to close a deal quickly, hard money loans can be approved within days, compared to the 30 to 50 days typical for a mortgage loan.
- Less focus on creditworthiness: Approval relies less on your credit score or income history and more on the property’s value.
- More focus on property value: These loans require collateral, such as a home, and are based on the loan-to-value ratio of the property.
- Not traditional lenders: Individual investors or private lending companies usually provide hard money loans, not traditional banks.
- Loan denial option: These loans are often used by those with poor credit who have been denied a mortgage but possess significant home equity.
- Higher interest rates: Due to higher risk, these loans have higher interest rates than traditional mortgages.
- Might require larger down payments: Borrowers may need to provide a larger down payment, sometimes up to 20%–30%, depending on the property’s value and loan specifics.
- More flexibility: With less government regulation, hard money lenders in Raleigh can set flexible credit scores and debt-to-income (DTI) criteria, and loans can help avoid foreclosure.
- Potential for interest-only payments: Unlike traditional mortgages, hard money loans may allow for interest-only or deferred payments initially.
What are hard money loans used for?
Hard money loans are versatile and can be used for several different real estate scenarios:
- Flipping a house: Ideal for house flippers needing quick funds for purchase and renovations.
- Buying an investment rental property: Useful for acquiring rental properties that need immediate improvements.
- Purchasing commercial real estate: Provides capital for buying and renovating commercial spaces.
- Borrowers who can’t qualify for traditional loans: Offers an alternative for those with poor credit or unconventional income sources.
- Homeowners facing foreclosure: This can be a solution for homeowners needing quick cash to avoid foreclosure.
How much do hard money loans cost?
The cost of hard money loans is generally higher than traditional financing due to the increased risk and convenience of fast funding. Typical costs include:
- Interest rates: These can range from 8% to 15%, depending on the lender’s risk assessment.
- Origination fees: Lenders may charge 1% to 5% of the total loan amount as an origination fee.
- Closing costs: Additional fees at closing can include legal fees, appraisal fees, and other administrative costs.
- Points: Lenders might charge points (a percentage of the loan amount) upfront, adding to the initial cost.
Online calculators are available to help estimate these costs, providing a clearer picture of your potential expenses.
Alternatives to working with hard money lenders
If hard money loans don’t seem like the right fit, 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 to pull out cash for your investment.
- Borrow from family or friends: Personal loans from loved ones can offer flexible terms and lower interest rates.
- Use a government-backed loan program: FHA, VA, or USDA loans can assist with lower down payments and reduced interest rates.
- Peer-to-peer loan: Platforms like MeridianLink or Funding Circle provide loans from individual investors.
- Specialized loan programs: Look for loans tailored for fixer-uppers or investment property refinancing.
- Request a seller financing option: Some sellers may agree to finance the purchase, reducing closing costs and 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 offers competitive rates, typically ranging from 9.5% to 12%, and provides the convenience of moving into your new home without waiting for your old one to sell.
Benefits include reduced stress, avoiding temporary housing, and potentially securing a better purchase price for your new home. The cost involves paying a small fee upfront, but the flexibility and peace of mind can be worth it for many homeowners.
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 Raleigh
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 Raleigh.
Carolina Capital Management
Carolina Capital Management serves real estate investors and small builders in North Carolina, South Carolina, Georgia, Virginia, Tennessee, Florida, and Texas. They provide hard money rehab loans, ground-up construction loans, and long-term financing for residential and commercial properties. Once approved, loans can close in as little as 10 days.
Lending clientele: Residential and commercial real estate investors and developers
Loan criteria: Up to 70% ARV (fix-and-flip), up to 70% ARV (commercial), up to 85% LTC (new construction), up to 75% LTV (long-term)
Carolina Capital Management has a 5-star Google rating based on a limited number of reviews and is accredited by the Better Business Bureau (BBB) with an A+ rating. Reviews praise their customer service, quick responses, and easy and efficient lending process.
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. Known for its simple application process and fast closings, Straightline Funding provides reliable lending solutions with terms ranging from 12 to 18 months.
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.
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.
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 Raleigh?
Determining if a hard money loan is suitable for your needs depends on your specific financial situation and investment goals.
Hard money loans are ideal for real estate investors who require quick capital and have a solid plan for property improvements. They offer flexibility in terms and approval processes, but they come with higher interest rates and fees than traditional loans.
For homeowners in Raleigh looking to leverage their home equity, consider HomeLight’s Buy Before You Sell program. This program allows you to buy your new home before selling your current one, offering a smoother transition and alleviating the stress of juggling two properties simultaneously.
It is important to know the full scope of your options for your long-term goals. Let HomeLight guide you through your next real estate project, giving you peace of mind throughout the process.
Header Image Source: (sepavone/DepositPhotos)
English (US) · 