October 12, 2021

    Real estate investors and house-flippers alike turn to hard money loans for numerous reasons, including speed, flexibility, and convenience. Although hard money loans are commonly known to have higher interest rates than commercial loans, there are many factors that affect interest rates on hard money loans.

    What Are the Benefits of Hard Money Loans?

    Many real estate investors sign with hard money lenders when they need specific funding for their projects. When one operates in the real estate industry, they must run on a tight schedule, meaning their financial options must be efficient and timely.

    Hard money loans are outstanding for investors because they’re typically approved and processed relatively quickly, with few requirements. Most banks require what seems to be endless documents with only a slight chance of approval.

    Credit Score

    As with many lenders in today’s financial industry, the interest rate of your hard money loan may be affected by your credit score.

    Although your investment property is more important in determining your interest rates, lenders also look at your credit score. However, some hard money lenders lend money to people with a credit score as low as 600.

    Amount of Requested Loan

    The amount of funding you’re requesting also affects your interest rate on hard money loans. If you’re looking to borrow $500,000 compared to $100,000, you may have a higher interest rate on your $500,000 request because your lender is taking a more considerable risk.

    Term Length

    How long do you think it will take you to pay off your loan? The length of your term determines how much you will be required to pay in interest rates. Generally, a shorter-term length equals higher rates, while a longer term has more flexibility in payments.

    Type of Property

    The type of property you’re investing in may also affect your interest rates. Lenders may prioritize your investment properties over other factors.

    If you’re investing in a property that is considered “low risk” like a residential property, as opposed to higher risk land like a farm, your interest rates may be lower.

    Market

    The real estate market is constantly changing, which heavily influences your interest rate on your hard money loan. Be sure to research the market before making your financial request.

    You can find many hard money lenders in Orange County that will assist you in your real estate ventures. They will also help you determine which of your personal factors will affect the interest rates on your hard money loans.