How to Choose a Hard Money Lender


What are Hard Money Loans?

Hard money loans are loans secured by equity in real estate. Hard money lenders rely on the fact that if the Borrower cannot repay the loan, the property will be sold voluntarily or through a foreclosure procedure to repay the investor's money. ey. Borrowers who need money to buy or refinance real estate will resort to hard money loans when they can't get a bank or subprime loan. Compared to banks and subprime loans, hard money loans could be arranged for borrowers with no or bad credit and borrowers who cannot verify their income. Most hard money loans are bridge loans for 12-36 months. Hard money lenders arrange loans up to 60%-65% of the property value with higher rates and fees than bank loans. Because lenders do not need to verify income and assets, they can fund hard money loans faster than bank or subprime lenders. Hard money loans are loans secured by equity in real estate. Hard money lenders rely on the fact that if the Borrower will not be able to repay the loan, the property will be sold voluntarily or through a foreclosure procedure to repay the investor's money.


Bank Loans

Banks are lending money to borrowers who can verify their income with 2-3 years' tax returns and supporting income documents such as W-2, pay stabs, 1099, and bank statements. The Borrower must have a low Debt-to-Income ratio (DTI) to be approved for a bank loan. Additionally, the banks must verify the Borrower's liquid assets, deposits, and good credit. Bank Loans can fund up to 97% LTV on residential properties and 90% LTV on commercial properties. Bank loans are best for people with good credit and verified income who are not rushing to get money. Find out if you qualify for a bank loan.


Subprime Loans

Subprime loans, AKA non-QM loans, are arranged by lenders who accept alternative forms of income verification and higher Debt-to-income ratios. Non-QM lenders could also base the loan on the property's income or potential rental income in a Debt Service Coverage Ratio program (DSCR). Sub-prime lenders can fund up to 90% of LTV and have more flexible underwriting requirements than banks. The interest rate of subprime prime loans is higher than that of bank loans but could be better than that of hard money loans.
Find out if you qualify for a subprime loan or a bank loan.


Private Investors (Hard Money lenders)

Borrowers who need loans but can't qualify for bank/ subprime loans or can't wait months for approval could resort to hard money loans, which private money lenders provide fast. The only requirement is that the Borrower has sufficient equity in the property.

There are thousands of hard money lenders in the US. The common denominator of all hard money loans is that the Loans are based on property equity. Equity is the difference between the property value and the loan amount. Since there could be different opinions about the property value among private investors, and since lenders have different maximum LTV they are willing to lend on, the maximum loan amount each lender is willing to lend will be different. Although equity is the prime factor in approving a hard money loan, other factors such as additional real estate, credit, experience, and income can influence lenders to lend above 65%.

Hard money lending –a fractionalized market

To demonstrate how hard money lenders differ from each other, look at the 6 lenders, A, B, C, D, E, and F, in the graph and notice that each one offers a different maximum loan amount. Although Lender D estimated the property to be $440,000, Lender B offers the highest loan amount because his LTV is 70%. The differences become even more pronounced when you discover that each lender offers different interest rates and fees and has different requirements for documents.


Inexperienced lenders can cause you to have sleepless nights and lose money even when they mean well. Check the lenders on Google, Yelp, LinkedIn, BBB, and other social media before you email any confidential information. If a lender requests a deposit, double-check the lender's history and ask for references. To be safe, check out the company's experience and reputation and the loan officer before you sign any documents or verbally agree to loan arrangements.

Trust Deed investment

Hard money is also known as a Trust Deed investment. The lender will record a Deed of Trust against the property, and the Borrower will have to pay the investor back before he can refinance or sell the property. If the Borrower can't make the payment, he will have to sell the property, or the investors can take the property in foreclosure and sell it to recover their investment.

Bridge Loans

Almost all hard money loans are for short periods. Lenders arrange loans for 6-36 months, with most loans for 12-18 months. Hard money Loans are often called BRIDGE LOANS because of their temporary function, which is either to give borrowers time to sell the property or to get it refinanced. (Few lenders can arrange hard money loans for 5, 7, or even 10 years until 2022 borrowers didn't mind paying high interest for the bridge loans, hoping that they will be able to refinance the loans with a long-term bank loan with a very low rate. When bank rates started to climb in 2022 and 2023, borrowers realized that they might not be able to get a lower bank rate, and savvy borrowers are now seeking longer terms, such as BRIDGE Loans, for 24—36 months.

Who arranges hard money loans?

Thousands of hard money lenders are looking to invest their own or investor money in loans secured by real estate equity. This investment is popular because of the high rate the investor gets and the security of the funds. In this article, we give you a list of the types of hard money lenders but keep in mind that they all fit under several designation types.

For example, Lender A can be a Direct Lender, a Wholesale Lender, a Retail Lender, a Gorilla, and a Vacant Land Lender.

For example, Lender B can be a Direct Lender, a No-Appraisal Lender, a Wholesale Lender, a Blanket Loan Lender, and a Fast-Closer Lender.

Do I need to know the type of lenders?

Getting a real estate loan can be a significant financial event in your life. Finding the right loan can save your business and family, and getting a bad loan can ruin you and the people around you. Knowing before you go can save you money and sleepless nights. Lendersa Lending portal will shop your loan to all types of lenders. You may skip the description and enter your request here, but we recommend that you still read about it:


The Gorillas

Gorillas are large mortgage companies specializing in arranging hard money loans. The Gorillas have almost unlimited money to lend, which they get from hedge funds and wealthy individuals. Many Gorilla lenders are lending in all 50 states. Most Gorillas will accept loan packages from mortgage brokers (Wholesale lenders)
Pro: The advantage of using a Gorilla lender is knowing that it will get funded once the loan is approved. Some Gorillas can fund large loans over $10 million with attractive terms.

Con: The Gorillas' main disadvantage is their lack of flexibility and stricter underwriting guidelines about the property and the borrowing entity. Gorillas participate on the Lendersa platform. You may reach the Gorillas with our loan request. If your request matches the Gorilla guidelines, they will contact you with a proposal, and if it does not match, then no worries, your request could be picked up with other types of lenders


The Mom-and-Pop Shop

Pro: Hard money is localized. A private investor familiar with the local neighborhood might be willing to invest in it, knowing it's valuable for him if he ever takes it back in foreclosure. Mom and Pop's shops could become the best funding sources because they know their area and know what their investors are looking for. In addition to knowing local investors, Mom & Pop shops will give you personalized treatment and will also shop your loan to wholesale lenders of the Gorilla type or other hard money lender types on this list.

Con: They need to package the loan and negotiate with other lenders/ investors on your behalf, which can add some time and uncertainty. They are not always there when they go on vacations or get sick, but overall, it is worth your while to check out the mom-and-pop shops in your area because they could be your only salvation. Lendersa loan requests reach the mom-and-pop shops in your area, and it is vital to see what they can offer.


Wholesale Hard Money Lenders

Wholesale lenders accept loans from mortgage brokers. Some exclusive wholesale lenders only accept broker loan packages and never interact directly with the borrowers. If the lender is exclusively a wholesale lender, you will be able to submit a loan to it only through a mortgage broker. Most Wholesale lenders also have a retail division and will accept loan requests submitted directly by the borrowers.


Retail Hard Money Lenders

Retail lenders accept loan applications from borrowers. Most retail lenders can also have a wholesale division. Some good Retail lenders work exclusively with borrowers and will not accept any packages from mortgage brokers.


Direct Lenders

A lender considers a Direct Lender when he funds and closes the loan with his own money without needing to source the money to a third party. There is a misconception among borrowers who are seeking only direct lenders who they believe can do a better job than other lenders who are not direct. A direct lender can be the best solution in certain situations where the loan requests are straightforward (Low LTV, decent credit in a good location). A problem arises when there are some problems with the property or the Borrower When the Borrower discovers that the Direct Lender can't do the loan, he will then need to start searching and negotiating with a different new lender from scratch.

Direct lenders do not always use their own money or their own line of credit to fund the loan, but they have a network of dedicated private investors, and as long as the direct lenders underwrite, approve, and issue the loan documents, they are considered direct lenders.

The Lendersa platform solves this problem by shopping your loan to several direct lenders or brokers all at once. If the lender you selected from a pool of lenders ends up rejecting your loan, there is no need "to start all over again" since other lenders are already on stand-by to fund the loan. Start now to shop your loan to multiple lenders.


Mortgage Broker

Some experienced mortgage brokers can be a lot more beneficial than Direct Lenders. Brokers can give you advice on how to package the loan and what to expect, and they use their connections to find the matching lenders for your loans. Trying to get a loan with a direct lender could be like trying to defend yourself in court. A good broker is like your layer when it comes to presenting your case to the ultimate lender.


Brokers' Chain

It happens that the broker you first contact does not have the wherewithal to get your loan closed, but he turns your application to another broker who, in turn, submits it to another 3rd broker that finally closes the loan. Broker Chains are not allowed for conventional consumer loans but are common with hard money lending lending. Example: A broker chain with 2 legs: Broker A Broker B, where Broker B funds the loan and gives a referral commission to broker A. Broker chan can be with 3 legs Broker A Broker B Lender C, and even longer.

CLUE: There is nothing wrong with a broker chain as long as it does not go out of control. If your loan is delayed, ask your broker if he shops the loan to other brokers, and if that is the case, insist on talking directly with the source (The funding lender) to expedite the processing of your loan. Not all brokers will be willing to disclose their funding sources, but if you threaten the broker to cancel the loan, he will be obliged to disclose and arrange for you to speak directly with the ultimate lender.


Private investor

Hard money lenders receive funds from private investors. Borrowers do not interact directly with private investors unless the investor is also licensed as a broker to arrange the loan. A loan can be funded by a single investor or a group of investors. Private investors are attracted to investing in trust deeds because of the security and the high interest (ROI) that is much higher than investing in CDs, mutual funds, or bonds.


The no-appraisal lender

Full appraisal requires a professional licensed appraiser to inspect the house inside and out. Some lenders only require an outside inspection and verification of value with Internet tools. Some lenders can fund low loan-to-value loans only by checking the property online. When time is of the essence, skipping the full appraisal could become a significant factor in selecting the lender.


High LTV Lender

The lower the LTV, the easier, the faster, and the lowest rate a borrower can get. Under 50% LTV is a lender's dream, and most lenders will go up to 65% LTV. Some lenders will lend up to 70% or even 75% or 80% LTV in a hot real estate market or to borrowers with excellent credit and high net worth. Find lenders who lend loans with high LTV.

100% LTV Lender

Looking for 100% hard money lenders is like finding a unicorn. But there are still ways to accomplish it if the Borrower can pledge an additional property with equity as security (blanket loan).

The other way to get 100% financing is if the purchase price is at least 35% below a very conservative value of the property. Getting a property below market price happens with certain family purchases from family members. It also occurs when buying distressed properties for Fix N Flip purposes; 100% of the purchase price is possible if the buyer has all the repair money to fix the place.


The Fast Closer

When time is of the essence, the Borrower should try to find a lender who does not require a full appraisal and has a good reputation for closing fast. Fast closers can arrange loans from application to closing in as little as 3-5 days. The LTV is usually under 60% to close fast and be prepared to pay higher points and rates. Get multiple offers from lenders who can close fast.


The problem solver

Hard money loans often pose problems that conventional banks need help solving. It could be a no credit/no income situation or other scenarios that banks will not touch.

Here are some of the issues an experienced hard money lender should be ready to face:

  • The weird property – Property that is not conforming, burned down, too small, old, or otherwise odd.

  • Bad credit, no income – A common situation for private loans is no or bad credit and inability to prove income.

  • The remote area lender- Most lenders will only lend on properties that are close to the city; those who do will keep the loan at a low LTV.

  • The no-document – The old-timer hard money lenders will only lend based on equity.

  • The blanket lender- Lenders who will take two or more properties as collateral to secure one loan

  • Vacant land lender – Most lenders avoid lending on vacant unless the property has entitlements.

  • The construction lender- lending for construction introduces complexities and the need to understand construction.

  • The Fix and Flip Lender- Hard money lenders who lend on Fix N Flip properties take into consideration the ARV and LTC.

  • The owner-occupied lender- Lending on owner-occupied property requires either proving the borrower's ability to pay or proving the loan is for business purposes.

If you face any problem getting a bank loan, try the lendersa portal with hundreds of problem-solving lenders.