hard money loans

Advantages and Disadvantages of Hard Money Loans

Advantages & Disadvantages of Hard Money

If you’re searching for the Advantages & Disadvantages of Hard Money this post is for you. When someone brings up a hard money loan, many think of it in terms of a loan shark type of investment, however, a hard money loan is a great business resource that is done through professionals that are knowledgeable in different loan areas. Hard money loans can be a good advantage for real estate investments for many.

Conventional lending to real estate investors are not very common, this causes investors to turn to hard money financing to take the slack between being able to get the property and the permanent financing they will need. Hard money loans are not cheap, but does serve its purpose in the long run. It may be possible to find hard money lenders that charge less, but the majority of hard money lenders are going to charge about five points and a fifth-teen percent interest.

A hard money loan offers the advantage of borrowing the funds needed to renovate. Many investment properties will have a little equity potential, whereas a home buyer might find the same property’s condition to be discouraging. Investors can purchase these properties and renovate them so that a home buyer will find them more attractive, thus, making the home buyer want to pay a better price for them. Hard money is one of the options that lets investors do just that.

The market today allows an investor to acquire a conventional loan, but they would be expecting the investor to put twenty to twenty-five percent down, and that is just for the money to get the property, any renovations would have to come out of the investors pocket. Hard money lets the investor purchase the property and make the repairs needed, and only need about ten percent down on the entire amount.

For instance, when purchasing a property at $50,000 that is going to need another $20,000 made in repairs would cost the investor to have to have $30,000 out of pocket money if using a conventional loan ($50,000, the twenty percent they charge, plus the additional $20,000 needed for repairs). Now, if the investor used a hard money loan it would cover both, the purchase amount and the repair amount, with the out of pocket expense being only around $7,000. Investors are more than willing to add these additional costs due to the leverage they have from the hard money loan.

Furthermore, an investor can get a conventional loan after they have used a hard money loan in acquiring and repairing a property, using the conventional loan as a permanent means of financing. Once the renovation has been done it raises the property’s value and the refinancing lender will be able to determine the investors loan amount by the new appraisal of the property, and usually, the lender will loan up to seventy-five percent of the appraised property value.  The investor might be able to get the conventional loan to cover refinancing the hard money loan, any closing costs and not have to use any out of pocket money, at all.

For instance, if we go by the figures mentioned above using the purchase price of $50,000, with another $20,000 estimated for repairs the appraisal could be about $100,000 or even a little more. If this is the case, the lender might allow $75,000 in financing for the investor, this would make it enough to cover the balance of the hard money loan and the closing costs.

Let’s assess the risks of a hard money mortgage lender:

There are mortgage lenders that will provide at risk borrowers mortgages, these are referred to as ‘subprime mortgages’, which is sometimes the only option for those with bad credit, but these can be risky. These types of loans are actually pretty similar to auto title loans which are backed by collateral of your car title.

A few of the Cons to consider are:

  • Their high interest rate – If a home is purchased using a hard money mortgage you are going to be paying longer for a long-term than with a prime mortgage.
  • Will you be able to pay it back? – In most cases, if you are going for a hard money mortgage it means that your credit is not so good and this is the only option you have. If this is the case, it is completely possible that you’ll end up being foreclosed on due to not being able to keep up with the new payments you are going to have.

When is the right time to borrow?

If you are committed at what you do then taking out a hard money mortgage could have its advantages for you.
The best time to borrow would be when you can go by these tips:

  • When you can be honest with yourself about the personal risks involved.
  • When you can take into consideration any unforeseen circumstances that could occur.

Time to prepare for the change in guidelines:

In the past Fannie Mae may have required investors to be on the title for a minimum of ninety days, but starting on May 1st, 2011 it began requiring that they be on the title for one hundred and twenty days before they would finance them. Though it may not seem a long time, for an investor to have to wait this time out could be devastating.

For investors who are planning on refinancing using hard money after May 1st of 2011 here are a few precautions you should take:

  1. You may be approved for a refinance today, but come four months down the road that could change due to guideline approval changes. To be certain that nothing is going to come as a surprise in four months from now you should ask your lender about what would happen to your credit if changes are made to the guidelines.
  2. Be certain that you don’t do anything that is going to lower the status you have making it where you will not be approved at a later time. That includes changing your job or your work status, and don’t apply for new credit or use more of the credit you may already have, and do not use all the money from your savings or checking accounts.
  3. Keep updated on any property sales in your area that could decrease your new property’s value. Keep in mind that even though your property may have been appraised one day for $100,000 does not mean that it will still have that value several months later.
  4. Prepare yourself for the interest amount on any seasoning period. It was possible to get refinanced in the past after only thirty days of purchasing an investment property, leaving you to only have to pay for one month of high interest. However, if you should get locked into a hard money loan for several months don’t forget to include this amount into your costs.

It doesn’t make any difference what your investing in, hard money financing may work out great for you. Whether the guidelines have changed when the time comes for you to need a loan you may find that a hard money loan gives you more leverage for the investment your making. However, you should always be on your toes when it comes to refinancing out of hard money.

Hard Money Lender Interest Rates 2015 – Brad Loans

Interest rates on hard money loans are much higher than traditional bank financed loans. The first reason why conventional residential or commercial property loans because there is a higher risk involved and shorter duration of financing. Interest rates are also dependent on how the real estate market is doing and the amount of hard money credit available.

Another factor is that most borrowers who use hard money need their loans quickly to purchase property at a profitable discount but their lack of credit requirements or debt make it almost impossible to get conventional Bank financed loans.

View the info-graphic and information below to find out the common interest rates of hard money lenders, how location and condition of your property effects points/interest rates and other loan fees associated with hard money lending.


  • Infographic
  • Hard Money Interest Rates
  • Hard Money Points
  • Loan Fees
  • Loan Terms & Amounts
  • Interest Considerations
  • Points & Fees Consideration
  • Conclusion


Interest Rates On Hard Money?


Hard money lender’s interest rates depend on the lender. Common hard money interest rates can be as low as 8% interest all the way up to 21% interest with the average hard money interest rate falling in at 14%, and terms can last for 6 months to a few years. Some lending companies will defer your interest payments, being that most lenders don’t want interest payments during the rehab phase.

Default Interest Rates On Hard Money

When borrower’s default on hard money loans they might be charged a higher “Default Rate”. Default rates are controlled by law and have a cap, defaulting on a hard money loan could leave you stuck paying extremely high percentages upwards of 25%–29%. Some private money lenders will collect a pre-payment penalty and some offer loans with no pre-payment penalties.

Credit Scores Effect On Interest Rates

Credit scores of the borrower weigh heavily on interest rates, especially with hard money lenders. The borrower’s experience and ownership of property might also have an effect on the given interest rate by the lender.

Hard Money Points


Not only will there be interest but hard money lenders also charge loan fees on your hard money loan. Typically, hard money lenders will charge you 2 – 10 points, or 2 – 10% of the total amount of the loan, this is referred to as your loan fee. It pretty common for a commercial hard money loans to start at four points, and go as high as 10 full points. 1 point is equal to 1% of the mortgage loan. Therefore, charging one point on $100,000 loan = $1,000 in loan fees. If you’re getting charged the 10 points, you are going to need to come up with $10,000 for the loan fee.

Loan Fees Associated

For investors that are used to traditional bank loans only having 1% or lower loan fees, this higher percentage can be a “shocker”. Usually this loan fee is set in stone and isn’t effected by experience, credit or the property’s characteristics.

Another factor that should be taken into consideration is the amount of time it takes for the lender to fund the loan. If you are new to their company it might take a little longer than someone else that has already had a loan funded previously. Taking this into account, it’s a smart decision to find a hard money lender that you can build a rapport with for future lending purposes. You want to be able to get your loan funded as fast as possible when trying to take advantages of great investment properties.

Loan Terms & ARV (After Repair Value) Amounts 


You want to find a hard money lender with terms that suit your needs. Here are the basic terms hard money lenders offer. Most lenders will only loan you 70% ARV (After Repair Value) of your home. The means that the lender is able to loan you 70% of what your repaired home is worth. For example: Let’s say you have a home worth $50,000 in its existing condition and its needs $10,000 worth of repairs, so after repairs, the new market value is worth $100,000. In this case the hard money lender would only be able to loan you $70,000 dollars.

**Important: All borrowers of hard money should use a real estate attorney to make sure your property is not sold or given away by you going into default or having late payments. Most of these procedures could be stopped by a credible real estate attorney and would require a court judgment.

How The Location & Condition Of Your Property Effects Loan Points & Interest Rates

Locations Effect On Points


The location of the property your buying has an effect on the amount of points you will be charged for loan fees. A great location will keep you in the 2-6 points range, an average location will cost you 3-8 point and a bad or remote location will cost you 5-12 points.

Location’s Effect On Interest Rates


The location of the property your buying also has an effect on the interest rate you will be charged for loan fees. A great location will keep you in the 9-12% interest range, an average location will cost you 10-13% interest and a bad or remote location will cost you 11-14% interest on top of your financed loan amount.

Condition Of Property’s Effect On Points

Depending on the condition of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3 points. A property in average condition won’t cost you any additional but a property in great condition could actually save you 1 to 2 points off of your loan fee.

Condition Of The Property’s Effect On Interest Rates

Depending on the condition
of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3% interest. A property in average condition won’t cost you any additional but a property in great condition could actually save you .5 to 1% off of your interest rate.

Credit Scores Impact On Interest Rates & Points On Hard Money Loans

Credit’s Effect On Points

Credit scores impact
the amount of points you will be charged in additional loan fees. Bad credit will raise your loan 1 to 3 points. Average credit will not affect your loan and great credit could possibly get you a discount of .5 to 1 point.

Credit’s Effect On Interest Rates

Credit scores also impact
the amount of additional interest you will be charged on top of your loan fees. Bad credit will raise your rate 1 to 3%. Average credit will not affect your loan and great credit may get you a discount of .5 to 1%.


It’s safe to say that if you are looking for a hard money loan, make sure that you have good credit, your property is in a good location/condition and that you are able to make payments on time to avoid the costly fees associated with hard money lending/financing.


Loan Programs, Rates & Fees We Offer in Phoenix, AZ: No Pre-Payment Penalty



  • 11.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 13.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • No pre-payment penalty
  • Purchase or Refinance


  • 12.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 14.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • No pre-payment penalty
  • Purchase or Refinance


  • 14.99% – cost: (NO Points!) $1,920 eMortgage fees
  • No pre-payment penalty
  • Owner Occupied Refinance only
  • Interest Rate Buy Down Fee: 2% of loan amount for 1% of reduction in interest rate


Interest Only

  • 15.99%
  • 0 points
  • $1,920 eMortgage fees
  • 4 month interest minimum
  • No pre-payment penalty
  • Purchase or Refinance


  • 11.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 13.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • Refinance or Purchase
  • No pre-payment penalty
  • Purchase or Refinance

View all of our Loan Programs



Looking for a mortgage, but having trouble due to your credit score?


Here are some things you can do to get your credit score headed in the upward direction so you can secure the loan you need to live in a home that is desirable for you and your family. Your credit score is viewed by lenders as a direct indication of your willingness and ability to pay back off loans and debt. Another way to look at it is the level of probability that you end up defaulting on the in the first 90 days. It may help you to view your credit score like more of a grade you would receive in school instead of an arbitrary number associated with you. If you have high grades you advance to better classes and receive preferred placement in the academic world and it’s no different in the financial realm. If you grade out high you will advance to better neighborhoods and receive preferred consideration when you make offers on properties or vie for loans, etc.  Keeping tabs on your score as you would you GPA will majorly increase the amount of attention and effort you give to improving your score (grade) and your overall life situation. If you are constantly aware of you credit standing, you will be less likely to make moves that could be potentially harmful to your credit because you eliminate the ‘out of site, out of mind’ factor that has been the downfall of many. The difference between your GPA (grade point average) and your credit score is the fact that you never graduate with credit and you always need to keep your score as high as possible. It’s a lifetime of performing your due diligence to get ahead.

If you fail in school you are given a chance to redeem yourself, whether you are re-taking a test or doing an entire grade over. Credit is the same way. You can always take action to raise your credit score, the amount of work and time it will take to reach redemption depends on how deep of a hole you have dug yourself into. The best place to start rebuilding your score is to look at any outstanding debts and start the process of getting them taken care of as soon as possible. You will see a significant boost to your score after amending any outstanding debts.

After attending to your outstanding debts you need to make sure that you NEVER fall back into the old habits, practices and mind sets that got you into the debt you just eliminated. That cannot be stressed enough; fixing your credit score is more than just a specified mission to improve one area of your life. In effect, improving your credit score comes along with making changes to your overall lifestyle. Approaching this as a wholesome change that will be permanent will put you on the path to reaching the state of mind where the changes you are making become second nature instead of necessitating conscious attention like they will initially.  Make your payments on time, or better yet, early WITHOUT EXCEPTION. This will assure your consistency will always be reflected on your credit report and your score will continually increase. This goes for any payment, small or large, and should become your new status quo for the long haul.

Be sure to not try to do too much at one time in order to remedy your credit score. Just like in school, it will be much easier to attain high scores and be efficient in your studies if you take on a course load that agrees with your lifestyle and schedule. If you take on too many classes during one term, your scores are going to suffer across the board because your attention is being exponentially divided and partitioned. The same thing goes for your credit score. If you try to take on too many remediation steps at once, you will ultimately fall short of your goals or significantly delay yourself from arriving at your desired destination.  Focusing on a few areas at a time until they suit the credit situation you are trying to create for yourself. Doing this ensures you will give full focus to the areas you have chosen to for your current efforts in raising your credit score. Seeing each area through to a satisfactory level will leave you looking at a very complete picture once you have concluded your efforts to rebuild your credit. Think of it like building a structure…..you can’t focus on the roof until the foundation and walls are planned for and built. It would make no sense to build your roof before the rest of the house is done. Start your work at the foundation of your credit score. You will build a sturdy, beautiful and practical structure in the end.

Another tactic that could be effective is disputing your credit score as you would a grade that you disagree with or feel you do not deserve. Just like when you used to complain to your teacher about your grade, you can also take up direct dispute with your credit score. The difference is that with your credit score it will take about 3-5 years for a negative mark to fall off your credit report. If you keep up positive credit practices your entire report should be clear within five years and you should be living with a shiny inflated credit score that will open up brand new possibilities for you and your family!

Are you refinancing mortgage with bad credit or are you in need of a no credit check, hard money loan for fix and flip, real estate, business loans, short sales or other endeavors with quick turnover in Phoenix or Scottsdale, AZ? Look no further than Brad Loans, the most trustworthy direct hard money lender and private money lender in Arizona! Brad loans is the best hard money lender in Arizona with the ability to fund residential & commercial hard money loans sometimes within a couple days or less. Our lending rates and fees are reasonable compared to other Arizona hard money brokers or mortgage brokers in Arizona.

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