Unless you work in the construction industry, you probably aren’t aware of hard money lender’s frequent collaborations with developers. Banks typically look at construction loans as too risky making hard money lenders developer’s best option for financing.
Hard money construction loans are a specific form of financing that is offered to developers planning to build new residential or commercial projects. However, there are factors involved when a lender is making a decision to finance you. Typically, if your lender feels confident on the returns of your project, your interest rates and required money down will be lower. Investors want to thoroughly understand the purpose of your property, the value of your property upon completion and regulations in your state. As a rule of thumb, it is easier to work with a hard money lender in your state, or a lender that is familiar with your state regulations.
Depending on the factors of your project, some lenders will finance up to 90% of the purchase price and 100% of construction costs. Rates can start as low as 7.99%, with interest only payments that typically run from 6 to 18 months. However, hard money construction loans can be extended out to upwards of 5 years, depending on the lender.
For the most part, conventional banks are uncomfortable lending on construction loans. Hard money lenders, on the other hand, are investors and if they see a potential profit, they will work with the borrower. Hard money construction loans also work for borrowers with poor credit. Most lenders can work with credit scores of at least 600, and some will even work with borrowers under a 600. If you seem financially risky to a bank, a hard money lender may overlook some risk factors in favor of the assets you can deliver. Depending on what you can bring to the table, a hard money lender may see you as a wise investment versus a financial risk. Hard money loans are short-term, high-interest loans and so it is worth noting these loans work best when you plan on finishing a project quickly.
Getting a hard money construction loan means you will need to get your finances in order. You will also need to have thorough information about the costs and plans of your project in order to give your potential lender evidence that you are a solid investment. It may benefit you to hire a broker, while searching for a hard money construction loan. This will increase the number of investors that will potentially finance your project. A broker understands how hard money loans work and what the lenders will require for repayment plans. They will work to find you a lender that matches your needs.
We have years of experience and can help answer any questions concerning a hard money construction loan. We would love to be a part of your investment journey. Please reach out to us at level4funding.com.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.