Most people who want to buy property start with a bank, a credit union or an online mortgage lender. The lender reviews income, credit history and debts, then decides whether to approve the loan.
That process doesn’t work for everyone. Some investors can’t fit their finances into a bank’s checklist, and others can’t wait as long as bank underwriting takes. In those cases, a hard money loan, sometimes called a bridge loan, may be the answer.
What is a hard money loan?
A conventional mortgage is approved on the borrower’s income and credit score. A hard money loan is secured by collateral, usually the property itself, and the lender’s decision rests mainly on that collateral.
Hard money loans are funded by private lenders or groups of investors, not by banks. A few other differences:
- Approval is usually faster than for a traditional mortgage
- The down payment is typically larger
- Interest rates and fees are higher
- The repayment period is shorter, and some loans have interest-only payments followed by a balloon payment
Are you a good candidate?
Hard money tends to help investors in situations like these.
Your income is hard to document. If you’re self-employed, or you write off a large share of your earnings, your tax returns may not reflect what you can actually afford. An asset-based lender looks first at the property and the project.
Your credit isn’t perfect. A lower score can rule out a bank loan. At Sachem Lending, underwriting focuses primarily on the property, your experience and the project itself, not only on credit scores or income.
You’re flipping a property. Hard money is popular with investors who buy, renovate and resell, because the financing can be arranged faster than a mortgage. If you’re competing with other buyers for a property to flip, reliable financing strengthens your offer.
The property is distressed. Banks often won’t lend on properties in poor condition or in foreclosure. Our distressed acquisition loans are intended for investors buying them.
What to have ready
Even a flexible lender needs information. Be prepared to share the property address, the purchase price, your renovation budget and your plan for repaying the loan. Our post on what’s needed to secure a hard money loan lists the usual documents.
Apply for a hard money loan
If a traditional lender has turned down your investment property loan, or you need funding for a project a bank won’t touch, Sachem Lending may have a solution. We lend to real estate investors on residential and commercial properties. Read our FAQs, contact us to learn more, or submit an application.
