Finding the right financing for your next real estate investment in Washington State can make all the difference. Whether you’re flipping houses in Seattle or investing in rental properties in Spokane, knowing the ins and outs of hard money loans can open up new opportunities. These loans, known for quicker approval times and flexible terms, can be a game-changer for investors needing fast access to capital.
Hard money loans are often favored by real estate investors who require immediate funding and are willing to pay higher interest rates for convenience.
In this guide, we’ll cover everything you need to know about hard money lenders in Washington, from how these loans work to their typical costs and potential alternatives.
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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 lender that provides short-term loans secured by real estate. Unlike traditional lenders, hard money lenders focus on the value of the property rather than the borrower’s creditworthiness. They typically work with house flippers, real estate investors, and developers who need quick financing.
Hard money lenders determine loan amounts based on the property’s after-repair value (ARV), which is an estimate of the property’s value after renovations. Interest rates for hard money loans are usually higher than those of conventional loans, often ranging from 8% to 15%.
Additional costs can include origination fees, closing costs, and points, which are a percentage of the loan amount paid upfront. As with any secured loan, failure to repay a hard money loan can result in the lender seizing the asset, such as a house, to recover their investment.
How does a hard money loan work?
Hard money loans in Washington operate differently from traditional loans, offering unique benefits and challenges for real estate investors. Here’s what you need to know:
- Short-term loan: Hard money loans are typically short-term, ranging from six months to a few years, making them suitable for quick turnaround projects like house flipping.
- Faster funding option: These loans can be funded much quicker than traditional loans, often within days, providing immediate access to capital.
- Less focus on creditworthiness: Hard money lenders place less emphasis on the borrower’s credit score and more on the property’s value.
- More focus on property value: The loan amount is based on the loan-to-value ratio of the property, considering its current and after-repair value.
- Not traditional lenders: These loans are provided by private individuals or companies, not traditional banks.
- Loan denial option: Despite the flexibility, hard money lenders can deny loans if the property doesn’t meet their criteria.
- Higher interest rates: Interest rates on hard money loans are higher, often between 8% and 15%, due to the increased risk for the lender.
- Might require larger down payments: To secure the loan, borrowers may need to put down a larger amount, typically around 20%–30%.
- More flexibility: Hard money lenders offer more flexible terms and conditions compared to traditional lenders.
- Potential for interest-only payments: Some hard money loans allow for interest-only payments, making monthly payments lower.
What are hard money loans used for?
Hard money loans serve various purposes for real estate investors in Washington:
- Flipping a house: Investors use hard money loans to purchase, renovate, and quickly sell properties for a profit. These loans provide the necessary funds to cover both purchase and renovation costs.
- Buying an investment rental property: Rental properties can be acquired using hard money loans, allowing investors to secure a property and generate rental income quickly.
- Purchasing commercial real estate: These loans can help investors acquire commercial properties that may not qualify for traditional financing due to their condition or other factors.
- Borrowers who can’t qualify for traditional loans: Individuals who have difficulty securing traditional loans due to credit issues or lack of documentation can use hard money loans to finance their real estate investments.
- Homeowners facing foreclosure: Homeowners at risk of foreclosure can use hard money loans to refinance 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 rather than an investor looking for a way to leverage your current home’s equity, here are a few options to consider:
1. Take out a second mortgage: If you have substantial equity in your home, a home equity loan or home equity line of credit (HELOC) can provide the needed funds at a lower interest rate compared to a hard money loan.
2. Cash-out refinance: This option allows you to refinance an existing property, pulling out cash to finance your new investment. It often comes with lower interest rates than hard money loans.
3. Borrow from family or friends: A personal loan from family or friends can offer flexible repayment terms and potentially lower or no interest rates, making it a more affordable option.
4. Use a government-backed loan program: Programs offered by the FHA, VA, or USDA can help buyers purchase homes with lower down payments and reduced interest rates.
5. Peer-to-peer loan: These loans are provided by individual investors through lending platforms like MeridianLink or Funding Circle, functioning similarly to hard money loans but often with different terms.
6. 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.
7. 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 is designed to help homeowners buy a new home before selling your current one. This innovative program allows you to make a competitive offer on your next home without the stress of timing your sale perfectly. By leveraging your current home’s equity, you can avoid the uncertainty and potential financial strain of juggling two mortgages.
The Buy Before You Sell program offers several benefits, including the ability to move into your new home before listing your old one, reducing the pressure to sell quickly. This program also helps you avoid the typical contingencies that can slow down the buying process. The program’s cost is competitive, with rates typically ranging from 9.5% to 12%, making it an attractive option 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 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 Washington State
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 available in Washington State.
Eastside Funding
Eastside Funding, founded in 2004 in the Pacific Northwest, offers a variety of hard money loan programs, including purchase, refinance, rehab construction, and development loans. It caters to investors seeking quick financing for distressed, residential, commercial, or raw land deals. With fast and efficient service, Eastside Funding can close loans within 72 hours.
Lending clientele: Real estate investors
Loan criteria: LTV requirement dependent on project
Eastside Funding has earned a 4.9-star rating on Google based on over 120 reviews. Reviews praise the company for its excellent communication, quick closing times, and reliable service.
Veristone
Veristone, located in Kirkland, WA, offers a variety of hard money loan programs, including short-term loans for developers, builders, and real estate professionals. Founded in 2006, Veristone can close loans in as little as a few days, emphasizing fast decisions and personalized service to ensure client success.
Lending clientele: Real estate investors
Loan criteria: Up to 80% LTV
Veristone has earned a 4.7-star rating on Google based on nearly 100 reviews. Reviews praise the company for its efficiency, professionalism, and exceptional customer service.
Flynn Family Lending
Flynn Family Lending offers a range of creative financing solutions for real estate investors, including second deeds of trust, cross-collateralization, and seller-financed deals. Their loans can close in as few as 10 days, with minimal document requirements and no need for credit or income verification in most cases.
Lending clientele: Real estate investors
Loan criteria: 65-70% LTV
Flynn Family Lending holds a Google rating of 4.7 based on more than 20 reviews.
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 Washington State?
Deciding whether a hard money loan is right for you depends on your specific needs and investment goals. Hard money loans are best suited for real estate investors who need quick access to funds and can manage higher interest rates and fees. These loans are ideal for projects like house flipping, buying rental properties, and purchasing commercial real estate.
For homeowners looking to leverage their equity, HomeLight’s Buy Before You Sell program offers a valuable alternative. This program allows you to buy a new home before selling your current one, providing a seamless transition and reducing the financial burden of owning two properties simultaneously.
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 Washington State who have access to trusted hard money lenders, let HomeLight introduce you to top professionals in your area who fit that criteria.
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