Private Money vs. Hard Money Loan Requirements, Interest & Fees

Hard Money Loan Credit Requirements

Most hard money lenders require a minimum credit score in the high 600s, somewhere in the 660–700 range. A few go as low as 620 or even below 600, at least during periods when real estate is booming and credit is looser.

For example, Kiavi and RCN Capital require a minimum credit score of 660. New Silver allows credit scores as low as 650, and Lendency goes even lower, allowing a minimum score of 575.

As a general rule, the lower your credit score, the higher your interest rate and fees. Start cleaning up your credit if you want lower rates and lender fees.

Some hard money lenders don’t do a hard credit pull. They still pull your credit report, but they do it with a borrower-authorized soft credit pull.

 

Down Payments for Hard Money Loans

No hard money lenders finance 100% of the purchase price of a property. You’ll need to cough up some dough for a down payment.

How much? It depends — on your credit score, your real estate experience, the quality of the deal.

On the high side, expect to put down 25–35% of the purchase price. If you have more experience and stronger credit, you might put down 15–20%, or even 10% if you have a long history borrowing from a specific lender.

Note that hard money lenders use two numbers here: LTC and LTV. Loan-to-cost (LTC) is the percentage of the purchase price that they’ll lend you. Hard money lenders also use loan-to-value ratio (LTV) to measure the loan as a percentage of the after-repair value (ARV). For instance, the lender might offer the lower of 75% LTV or 85% LTC.

Lastly, most hard money lenders do allow you to borrow the down payment, unlike conforming mortgage lenders. Hard money lenders effectively shrug and say “Get the rest of the money wherever you want, it just won’t come from us.” That means you can minimize your down payment by combining a hard money loan with other forms of financing, such as unsecured business credit through a service like Fund&Grow.

 

​Hard Money Loan Interest Rates & Fees

What can you expect to pay for a hard money loan?

Again, it depends. Borrowers with better credit and more real estate investing experience pay less than newbies or borrowers with bad credit.

As a general rule, expect to pay roughly 150–400bps over the prime rate, which is in turn typically around 300bps over the Fed funds rate. In layman’s terms, that means around 4.5–7 percentage points over the Fed funds rate, which is how the Federal Reserve sets interest rates.

Thus, if the Federal Reserve has set the Fed funds rate at 5.5%, you might expect to pay 10–12.5% interest on a hard money loan.

Hard money lenders charge several types of fees at closing as well. Most notably, they charge origination points, where one point equals 1% of the loan amount. Expect to pay 2–4 points as a broad rule of thumb, although exceptional borrowers might negotiate that lower while unattractive borrowers may pay more.

These lenders also sometimes charge “junk fees”: flat fees that they find ways to justify. Watch out for fees like “administrative fee” or “underwriting fee” or “document preparation fee.”

Since you hold these bridge loans for such a short term, the interest rate actually doesn’t matter nearly as much as the fees and points. You’ll only make a handful of monthly payments at the high interest rate, so pay more attention to closing costs.

 

How to Get a Hard Money Loan

As you explore hard money loans, your first step involves simply compiling a list of lenders to contact.

Some hard money lenders operate locally, in a single city or area. Others lend nationwide, or nearly nationwide. To compare loan terms among the larger hard lenders in the U.S., check out our comparison charts of investment property lenders.

Start reaching out to lenders to establish contact and collect price quotes. You want as many options in your “financing toolkit” as possible. Two lenders may turn down your loan, while a third agrees to work with you.

Bear in mind that these asset-first lenders will pick apart your deal detail by detail. They want to make sure you’re buying for a great price, and have plenty of room to force equity through renovations. If they don’t feel comfortable with the profit potential of your real estate project, they’ll turn you away.

So, prepare a good pitch. Tell a good story about the deal. Demonstrate why you’ve scored a great bargain on the purchase price, why your renovations will create so much equity, why the ARV will be so much higher than your combined purchase and renovation costs.

If they believe the deal makes sense mathematically, they’ll lend you money, assuming you meet the other hard money loan requirements.