3 Ways Banks Trap Real Estate Investors in Pricey Loans (and How to Get Out)

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Credit, banks, and real estate investors: 3 traps and how to avoid them. 

As a real estate investor, you always want to minimize costs. This includes the costs of the money itself.

However, banks can trap real estate investors into paying more than they should. You could be paying 1-4% more in rates, 5-10% more on down payments, or could even be denied altogether.

These three traps all come back to what we call the usage circle. Let’s talk about what the usage circle is and how it affects real estate investors.

The Usage Cycle: How Banks Trap Real Estate Investors

Here’s how the usage circle goes:

  • A real estate investor uses their credit cards to keep a project going. They pay for materials, labor, expertise, and more on their cards.
  • They will pay the card off after the real estate transaction. When they close or refinance a deal, they’ll wipe the card back to zero.
  • But while they’re using the card, their credit score will drop. When they pay off the card, their score will go back up.
  • Banks still use the current, low credit score when they give you the loan.

And there’s the trap.

Using credit to buy the stuff that keeps your business going pulls down your credit score. But with a bad credit score, you can’t get the loans to keep your business going.

How Credit Usage Impacts Loans

Usage makes up 30% of your FICO credit score. When an investor is using a lot of their available credit, their score takes the hit.

The difference between a 679 and a 680 score can mean the difference between getting a conforming conventional investor loan or getting declined.

You’ll pay off your credit once you sell or refinance your investment property and your score will go back up. Banks know this, but they can’t take it into account. They have to use your current credit score when you apply – even if it’s only low because of high usage on business costs.

Here’s how banks leave real estate investors trapped in this way.

1. Higher Interest Rates or Loan Costs

If your credit score is down due to high usage, you’ll end up paying an extra 1-4% either on your interest rate or loan costs. On a $400,000 project, this can add up to an extra $4,000 to $16,000 just for one transaction.

2. More Money Down

Banks may require you to put down 5-10% more on a property if your credit score is low. On a $400,000 transaction, this means you’ll have to bring an extra $40,000 out of your pocket. This unexpected cost could prevent you from doing the deal in the first place.

3. Loan Denial

Banks may decline a real estate investor’s loan if their credit score is even just one point below the bank’s guidelines. If you can’t get a loan, you’ll be locked out from getting a rental property, flip, or other investment opportunities.

Solution to the Banks’ Real Estate Investor Credit Problem

The credit score usage trap is real. It happens to almost 80% of the clients that we see.

The solution to avoiding the credit score usage trap is simple: stop using your personal credit cards for business use. If your credit usage is in your business’s name, then it won’t impact your personal credit score.

Here’s the method we recommend.

How to Move Your Credit Usage from a Personal to a Business Credit Card

If you have an LLC set up, you’re already working as a business, and your usage is impacting your personal credit score, then you can move the debt.

You can pay off the credit card balances using a private loan. This usually looks like having a family member or friend provide the funds.*

Then, you let the credit cycle through 30-90 days to allow your score to go back up. Once your score is settled, you can apply for a business credit card and move the balances over.

*If you don’t have someone you can ask for a private loan to do this, reach out to us. We do this type of loan all the time for our clients. We don’t want credit to be the reason you can’t flourish in your real estate investing career.

Stop the Banks’ Usage Cycle Trap for Real Estate Investors

It’s important to choose the right credit card. Some business cards do still show up on your personal credit. Do not choose this card – it defeats the whole purpose!

Not sure which card to pick? We have a link on our website to a business card that we use ourselves and highly recommend. If you get it, we’ll give you $250 off the next loan you do with us.

Tricks and tools like this are what set apart successful investors. Don’t let credit and banks trap you in pricey loans!

Happy Investing.

DSCR Loan vs Conventional Loan: 11 Facts You Should Know

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11 categories to consider a DSCR loan vs conventional loan.

In real estate investing, you come across two main loans: a DSCR loan and conventional loan. These are the main methods of financing everything from a single family up to fourplexes.

But how are they different? Most importantly: when should you use each one?

Let’s go over the differences between a DSCR loan and conventional loan.

What Are a DSCR Loan and Conventional Loan?

DSCR stands for debt service coverage ratio. A DSCR loan is specifically made for investors’ rental properties.

There are three main requirements for a DSCR loan:

  1. The property has value.
  2. You have good credit.
  3. Rent covers the property’s expenses.

While a DSCR loan is investor-only, conventional loans have a broader usage.

There are many types of conventional loans, which are also often called traditional, Fannie Mae, or Freddie Mac. Investors often use these loans for refinancing properties – both owner-occupied and rentals.

Which Loan Should You Use?

You’ll need to use both types of loans in your investment career.

Although there are tried-and-true investment techniques, every property will require something slightly different. Plus, depending on where you are in your investment career, credit, and income, the loans you’ll need will change.

Let’s compare and contrast 11 categories and discuss whether a DSCR loan or conventional loan has the advantage.

11 Things to Know About DSCR Loans vs Conventional Loans

  1. Income

DSCR loans only look at the rents on the property and whether it covers the expenses. They won’t bother with your W2s or other proof of income.

Traditional loans do consider W2s, tax returns, and other financial records from the past several years.

Advantage: DSCR

  1. Down Payment

Both DSCR and conventional loans typically require a 20% down payment. However, this can vary depending on your credit score.

Advantage: Neither

  1. Credit

DSCR loans may accept a lower credit score, as low as 640. Traditional loans may require a higher credit score – usually 680 or higher.

Advantage: DSCR, slightly

  1. Closing in a Business Name

Traditional loans only allow closing in a personal name. You can quick claim it later into your business name, but you must close in your name. DSCR loans let you close in an LLC – in fact, they prefer it.

Advantage: DSCR

  1. Time in Business

DSCR loans don’t care how long you’ve been in business, while traditional loans require at least two years of business income.

Advantage: DSCR

  1. Loan Rates

So far, it seems like DSCR loans have all the advantages. But when it comes to interest rates – one of the most important considerations for a loan – you’ll see it switch.

Conventional loans almost always have a 1-3% lower rate than a DSCR loan. This can be a deciding factor when you’re considering cash flow. 

Advantage: Traditional

  1. Underwriting

DSCR loans require less documentation than traditional loans. Conventional loans ask for every possible piece of information. DSCRs only need your credit score, your LTV, and the property’s rent.

Advantage: DSCR loans.

  1. Cash-out Options

DSCR loans may offer cash-out options of up to 80% of the appraised value, depending on your credit. Traditional loans max out at 70%.

Advantage: DSCR

  1. Types of Properties

What if you have a property that has between five and eight units? Or what if you have a mixed-use property? The only one of these two loans that will even consider a unique property like that is DSCR. You can get conventional loans for only 4 units or less.

Advantage: DSCR

  1. Prepayment Penalties

A prepay penalty means you’ll have a fee if you pay off a loan within a certain timeframe. The lender wants to incentivize you to keep the loan on the property for a longer amount of time. DSCR loans usually have a standard prepayment penalty between 3-5 years. Traditional loans typically have no such penalty.

Advantage: Traditional

  1. Underwriting Guidelines

A nice thing about conventional loans is that they have standard, electronically underwritten guidelines. Any bank or mortgage company you go to will have the same “rules.”

With DSCR loans, on the other hand, every lender has slightly different requirements, underwriting, and rates.

Advantage: Traditional

When To Use a DSCR Loan vs a Conventional Loan

You might need both of these loans, so it’s important to understand the advantages and disadvantages of each.

Not sure where to start with finding a loan? That’s why you should work with someone like Hard Money Mike. We shop the nation for the best loans to match with our clients.

Email us at Info@HardMoneyMike.com with any questions.

If you need more help deciding if a DSCR loan is right for you, download our free DSCR calculator here.

Happy Investing.

Homegrown Happiness

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Homegrown happiness is a goal that every homeowner has. This home, recently flipped by one of our long-time, outstanding flippers, Ryan, goes far beyond homegrown happiness. The happiness doesn’t start when you walk in the door, it starts when you walk onto the property. What he did to the land and the exterior of the home is really what makes this house shine.

When he first walked onto the property, it was as though the land was trying to take back the area and swallow the house back into its wild, arboraceous garden. There was a thick foundation of old, decaying leaves covering the land from the edges of the house all the way out to the fence lines. There were dead tree limbs laying to and fro. The fences around the property were cracked, stained, and partially uprooted. Ryan knew that he had to start on the outside if he even had a chance of pulling this house out from under this mess.

With a good landscaping crew alongside him, they whipped this place into shape quickly. Give a little TLC to the land, and it will give it right back to you in spades. Homegrown happiness is found with a bright green lawn, sparkling new white paint on the fences, and the trees trimmed and happy. This property had an entirely new feel to it. It was welcoming and comforting. It made people want to take a deep, full breath and just enjoy the scenery.

And on top of the beautiful landscapes outside, he turned the interior of the house into a shockingly charming home. It goes to show that a homegrown happiness is only truly found if both the interior and the exterior of the home reflect the TLC that you put into it.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Make Yourself at Home

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Many homeowners have a goal of making their home so comfortable and inviting, that they can say to anyone, “Make Yourself at Home”. For some, it comes easily, as they are natural caretakers and hosts. For others, it comes with much more effort. But the end result is always the same. People are so comfortable and have such a feeling of welcome in the home that they almost don’t want to leave.

That, right there, was the main goal that Ben had when fixing up and flipping this home. He wanted to provide this home with such a magical makeover that the new owners would feel as though their home was so inviting and cozy that they could welcome anyone in and offer them that homely warmth that we all love so dearly.

Ben knew that a lot of that comfort comes in how the home is furnished and designed. However, he also knew that a big part also comes from the house itself, and the feeling you get when you walk in. The bones and structure of the home go a long way in making the house feel a certain way. In addition, the flooring, paint, and appliance choices he made were an integral part of his ultimate vision. He wanted to provide a house that had the strong beginning and foundation of the warmth and comfort that would eventually be present in the home.

With his focus set, he was able to turn this house around in less than 5 months. He purchased the home for $157,000 and ended up selling it for $312,500! Not only did he accomplish what he set out to but made more of a profit than expected in this tough market. That goes to show you: giving a house that warm and fuzzy feel goes a long way. People who have homes that are so welcoming always want to share the warmth, invite people in, and say “Make Yourself at Home!”

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

How to Use the Quick DSCR Loan Calculator

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A DSCR loan calculator that shows the best loan to secure future cash flow.

There are two items you need to calculate DSCR: income and expenses.

Income is the rental income from the property. And for expenses, lenders only look at four costs: mortgage, taxes, insurance, and HOA. The debt service coverage ratio essentially compares the income to the expenses.

To make this calculation simple, we have a free DSCR calculator that you can use to find all this information.

Let’s go over an example of how to use this calculator to learn your DSCR and the best loan product for your property.

The Numbers You Need for a DSCR Calculator

The main numbers you’ll need to bring to the calculator to get an accurate DSCR are the property’s expenses and its income.

Mortgage

Firstly, we need to nail down the relevant expenses to input into our DSCR calculator. The first of these is the mortgage payment.

The two pieces of information you need to know are: 

  • What is the purchase price of the house?
  • What LTV will you qualify for?

The calculator finds out the mortgage payment for you. Let’s say our property is $300,000. You may need or qualify for an LTV anywhere between 65-85%, but we’ll just go with the average of 75% for our example. Our loan, then, is $225,000.

Let’s say we qualify for a 7% interest rate. You’ll also input that number. Then the DSCR calculator will show the total monthly payments on three different products: interest-only, 30-year amortized, and 40-year amortized.

Taxes, Insurance, HOA

For these final three expenses, you might already have the hard numbers available for the property. Otherwise, you’ll have to make an educated guess based on your area.

For our example, we used:

  • Property Taxes: $150
  • Insurance: $100
  • HOA (only applicable depending on your neighborhood): $150

Rent Income

Lastly: the property’s rental income. You may already have a tenant with a set rental rate. In that case, use that number. If you’re not currently charging rent, you’ll have to do some research on other housing in the neighborhood to see what you can realistically charge your future tenants.

In our example, we’ll say we get $1,700/month from this property.

The DSCR Loan Calculator’s Results

As shown below, the DSCR calculator shows you the costs, rents, and ratios of three possible DSCR products: an interest-only, 30-year AM, or 40-year AM.

This comparison gives you a look at different cash flows from different loan products. This can help you decide which loan you should apply for. You’ll have to consider both loan length and cash flow.

In our example, the interest-only loan is over 1, so that one will likely give us the best rate, best LTV, and highest cash flow.

The other two loan options are just under 1. There will still be some options on the market for DSCRs under 1, but you’ll have a higher interest rate.

Use a DSCR Loan Calculator for Your Property

If you need a DSCR loan for your property, you can find our DSCR calculator at this link.

Have more questions about DSCR? Interested in a loan? Send us an email at Info@HardMoneyMike.com.

Happy Investing.

Hard Money vs Cash: Which Should You Use for Real Estate Investing?

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Have your cake and eat it too: using hard money vs cash on real estate offers.

Is it better to make an offer on a property with hard money or cash? Which saves money in the long run? Is it the same in the eyes of the seller?

We’ve been doing real estate investment funding for 20+ years and seen tens of thousands of transactions. Here’s what we’ve found to be true: The majority of clients that get deals make a cash offer first, then let their hard money lender take it from there.

Let’s go through the steps to do this legally and on time to help you get the deals you want.

Hard Money vs Cash

What is the difference between a cash offer and a hard money offer?

A cash offer is your money. You bring the money in, and you have no requirements from the seller.

With a hard money offer, you’re borrowing money. You bring in a third party, a lender, and they will have requirements like underwriting, appraisals, credit, etc.

The Seller’s Perspective on Hard Money vs Cash

The seller and their realtor want the least amount of complications possible. Using a loan and bringing in a lender adds complications.

A cash offer, on the other hand, reduces friction. The seller’s side knows they won’t have to worry about:

  • Is the buyer approved for a loan?
  • Do we have to wait for an appraisal?
  • Will there be anything that will slow down this process?

A real estate seller will almost always prefer cash over any kind of loan – even a hard money loan.

Cash Is King…

From the seller perspective, cash offers are undoubtedly the best. From an investor’s perspective, however, it’s almost always better to buy properties with leverage.

But because cash means fewer complications and a faster close, sellers will often give a better price for cash offers.

And in real estate investing, it’s important to get the lowest possible price. So, you should always use cash on a contract offer when possible. It allows you to purchase a property quickly, at the price you want, with no extra costs.

How does this work?

When you put in the offer, check the box that shows it’s a cash offer. The seller will likely accept it (at the lower price you want). Checking the “loan” box on this form automatically makes you slightly less likely to get the property.

…But Leverage Is Power

Once it’s accepted, you can hand the contract over to a hard money lender, like Hard Money Mike. We will reach out to the title company and let them know it has changed from a cash transaction to a hard money loan. The transaction is approved, ready to close, and can be changed by a hard money lender fully legally.

At the closing table, the title company lets the seller know there is an amendment to the contract.

But once the deal gets to the closing table, you’re done. You’re closing the property and the deal at the price you wanted.

A “cash offer” will give you an advantage in the market, but a hard money lender can help you with the actual funds.

Hard Money Lender Help with Cash Offers

There is a big difference between hard money vs cash. When you put in your offer, check the cash box. But you can legally have a hard money lender change it into a loan and get it closed with the best price in time.

We always want to get you the best deal. Now is a great time to invest. If you find a great property, make a cash offer, give us a call, and we can convert it to a hard money loan.

Email us at Info@HardMoneyMike.com to send us a deal or ask any questions about the hard money loan process. You can also get more weekly real estate investing information on our YouTube channel.

Happy Investing.

Go Big or Go Home

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You’ve heard of the saying, “Go Big or Go Home”? Well, why not make it “Go Big AND Go Home”? With what we saw happen with this property in Aurora, CO, we can confidently say that Phil, the fix and flipper, pulled out all of the stops in order to make this house a home.

 

Purchased in mid-summer at $188,500.00, the house was in rough shape. Phil set his budget at $45,000.00 with everything from demo and new paint to new hardwood floors and updated appliances. Due to his keen knowledge of the area and the upper class neighborhoods nearby, he knew he had to bring his A-game, so that he did.

For instance, take a look at this half bath. He completely gutted it and replaced it with a modern, sleek look. He re-textured the walls, put in new floors, and finished it off with a gorgeous new vanity with a drop-in sink. Talk about jaw-dropping.

We move into the kitchen and see that his A-game didn’t stop in the bathroom. Again, he completely gutted it and put in new floors, new tile, new appliances, and new paint. Everything is sparkling and new. Almost too luxurious to cook in, right? No way, this kitchen offers any chef the ability to make scrumptious masterpieces that look as good as the setting they were made in.

The fact of the matter is, Phil took this home from rags to riches. He saw the beauty underneath what was left by the previous owner. And a good thing he did! He ended up selling this house for $330,000.00 after only 4 months of solid work! That’s an incredible payoff and he earned every penny. There is no doubt about it, he went BIG and made this a home.

 

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

How to Qualify for a DSCR Loan in 3 Steps

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3 quick tips from a lender on how to qualify for a DSCR loan.

In the real estate investing biz, you need to become fast friends with the DSCR loan.

DSCR loans are great for getting out of hard money on fix-and-flips you end up wanting to keep. They’re also a great alternative to traditional loans for any rental property.

While traditional loans have universal (and often strict) underwriting guidelines, DSCR loans are a little more individualistic. Each lender is their own gatekeeper to their DSCR loans

Even though qualifications vary from lender to lender, we want to share with you 3 steps that will always move you toward a DSCR loan approval. Here’s how to qualify for a DSCR loan in 3 steps.

1. Credit Score: Understanding Your Credit

Your credit is the main factor that lenders consider when evaluating your loan application.

Many lenders (especially in the current tightened lending environment) will zero in on your credit score. But all lenders will at least check your report to look for foreclosures, bankruptcies, and your history in general.

Often, though, a higher credit score can get you a better loan-to-value (LTV) ratio and a lower interest rate. For example, a 740 score will get you an LTV 5-10% more than a 640 score. Your interest rate with a 740 score will be .5-2% lower than the interest rate with a 640 score.

If your credit score is below 700, you should take steps to improve it – such as paying down credit card debt and making sure all your payments are on time. 

This article offers some ideas for raising your credit score quickly. You can also download this free credit score checklist to get you where you need to be.

2. Money: Down Payments, Closing Costs, and Reserves

In addition to the down payment, you’ll need to have enough money for closing costs and reserves.

Down payment will be 20-30%, depending on your credit. It’s also important for you to know how much equity the house will have, as this will predict some of your loan terms.

For reserves on a DSCR loan, lenders often require you to have 3-6 months’ worth of mortgage payments. This extra cash protects the lender in case your tenant unexpectedly vacates or some other unexpected situation arises.

The money doesn’t necessarily have to be yours – you can borrow OPM from a business partner, friend, or family member. To get a DSCR loan, though, your lender will want to see the funds for a down payment and reserves to approve you.

3. Know Your Numbers: Property Income and Expenses

DSCR loans are based on the property’s ability to generate income and pay for itself. So your in-flow and out-flow numbers are a major factor in whether or not you get a DSCR loan.

The minimum requirement is that the rent covers all expenses. 

Expenses include:

  • The mortgage payment
  • Taxes
  • Insurance
  • Any HOA fees

Expenses not considered by your lender include:

  • Property management fees
  • Utilities
  • Maintenance

If the property generates more income than expenses, you’ll get a better rate. However, if it doesn’t break even, you’ll likely end up paying a higher rate.

For example, if you show a lender your property can bring in $1,250 and your payments are only $1,000, you can get a better rate.

Know your numbers to get your DSCR loan approved. The last thing you want is a bad surprise when the lender tells you the numbers won’t work out like you thought.

How to Qualify for the Right DSCR Loan

These 3 steps are how you can qualify for a DSCR loan for investors.

Remember to focus on:

  • Improving your credit score
  • Having money for down payments and reserves
  • Knowing your numbers ahead of time

Leverage is king in real estate. With a little bit of effort, you can secure the financing you need to grow your real estate investment portfolio.

We want to get you the right loan for the right project. Show us a deal or ask us any questions at Info@HardMoneyMike.com.

Cottage in the City

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In today’s wild and crazy world, who wouldn’t love a cottage in the city? You get the convenience of being in the city, but at the same time you get the warm, cozy feel of a cottage. And not just any cottage, this home offers far more than your average cottage. Jed and Sam found this property out of sheer luck, they weren’t even initially thinking of looking in this neighborhood. They stumbled across a diamond in the rough and knew it from the get-go.

This 5-bed, 3-bath, 2,506 square foot home hadn’t been updated in over a decade and these guys were able to purchase it for $260,000. Their scope of work included everything from demo to bathroom facelifts.

Let’s start with the kitchen. Not a bad looking kitchen to start with, the design is gorgeous. But by replacing the appliances and countertops and giving everything a new shine with some fresh paint, it looks like a brand new kitchen!

And the best part about flipping is that you don’t always have to go above and beyond. Simple fixes such as new carpet, smooth ceilings, and refinishing some wood can make all the difference.

These guys put in their best effort in the small touches that aren’t seen in the photos. Things such as closet lights that are motion detected, and mirror defoggers in all of the bathrooms so the mirrors won’t fog up during a shower. When all was said and done, this homely cottage shot up in value like this neighborhood had never seen. At the onset of this project, they set their ARV at $340,000. But interested buyer after interested buyer set the final offer price at $388,500!

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

7 Ways to Get the Best Rate on a Hard Money Loan In This Market

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Interest rates can make or break your REI project. Here’s how to get the best rate on a hard money loan.

Investing is a leverage game.

You need other people’s money to make money – but that doesn’t mean you have to overpay for that money. 

Let’s take a look at how to get the best rate on hard money loans in the current environment.

What Is Hard Money?

Hard money is sometimes called asset-based lending, or private money.

Hard money is a form of leverage focused on the property. All lenders have criteria they require from borrowers. For hard money lenders, the main lending requirement is about the property and project itself.

Lender Niches Will Affect Your Rates

Investors have their own niches, their own likes and wants for their investment experience. Maybe someone doesn’t want rural properties, someone else focuses only on high-end houses, another on low price points.

Lenders have individual likes and dislikes the same way. Every lender draws a box of what they like to lend for. The more your property fits in their box, the better rate they’ll give you.

This means that not all lenders will want your particular project – or that they won’t give you the best rate on your hard money loan. It’s not personal. Not every project will fit in every lender’s “box.”

If you want the best rate, then you’ll have to find the lender that likes your project, your experience, and your property.

Types of Private Money

There are three types of lenders that make up the private lending world: local, national, and OPM.

  • Local Lenders: Lend regionally, in your state or city only.
  • National Lenders: Backed by Wall Street hedge funds. They lend all throughout the US.
  • Real OPM: Other People’s Money. A private loan from someone you know..

The best rate on a hard money loan will vary lender to lender, depending on the type of institution and their preferences. One lender might do land loans, but another won’t. One may offer great rates on new builds but not even offer scrapes.

Whatever your project, it’s important to find a lender that matches you. The closer you match a lender’s preferences, the better your rate.

Despite all these differences between lenders, there are some general rules between the three types of hard money.

Real OPM

The best possible rates come from OPM. A friend, family member, or other investor who wants a safe place to put their money will cost you a lot less than a formal lending institution.

You save on cost with an OPM loan because there are no points, fees, or appraisals. Every institution will charge you these extra on your loan.

OPM also saves you the most on interest rate. The interest rate criteria for most OPM lenders is, “more than they could get in an IRA.” Typically with OPM, interest rates are 3-4% less than other lenders.

National and Local Hard Money Lenders

Both local and national lenders will have similar pricing, for the most part.

Rates for these lenders depend on what they’re looking for in their portfolio. Now, in late 2022 to 2023, most lenders’ rates will be between 9-12%.

One difference, however, is that local lenders tend to not have extra underwriting and appraisal fees.

Shopping Around to Get the Best Rate on a Hard Money Loan

The best rates aren’t going to come to you. You’ll have to shop around to find the best lender for each of your projects.

Talk with lenders in your area and get estimates for loan costs. Then, you can use our free Loan Optimizer tool to quickly compare lenders and find out who’s cheapest.

Lowering Risk to Get the Best Rate on a Hard Money Loan

To get the best rate on a hard money loan, think of it from the lender’s perspective. They want to lend to people who are low risk. Therefore, the less risk you pose, the better your rates become.

So how do you lower the risk? Here are 7 ways you can lower your risk to get a better rate from a lender.

1. Straight Talk

Firstly, be able to back up everything you tell your lender. No lender wants to be in a position where they have to try and figure out what’s true and what’s not.

If you do this, lenders will put you at the end of their long line of waiting borrowers – or they’ll increase your cost.

Give them all the information they need. Be honest about everything – even the ugly parts of your credit or investment history. If you think your rate will be worse if they knew the full store, just remember… It’ll be even worse if they find out you hid it.

2. LTV

The lower the loan amount on a property, the less risk for the lender. The less risk for the lender, the more likely they’re going to give you a better rate.

Putting more money down results in a lower rate overall.

3. Experience

If you can show a lender that you’ve had success flipping houses, building homes, or developing land, you pose less risk. Investors with projects under their belt usually see lower interest rates.

4. Credit

National lenders (hedge funds) use credit as one of their main criteria for rates. The better your credit, the better the interest rate they can offer you.

The difference between a 640 score and a 740 could be a difference of 1-1.5% on your interest rate.

Local lenders and OPM lenders don’t consider your credit score as a major requirement. They will look at your credit, but only to make sure you’re not defaulting or have a foreclosure or bankruptcy.

5. Property & Project Types

As mentioned before, each lender has a real estate niche. If your project fits in their box, you can catch a bit of a break on the interest rate. If it does not fit in their box, they may still lend to you, but they can charge you a little more, making your project less profitable.

6. Loan Size

Some lenders won’t lend under a certain amount.

Hedge funds often dislike smaller loans. Some won’t lend under $100,000 – some have a threshold at $500,000.

Smaller loans, like $25k or $50k, are more suitable for OPM. OPM lenders often have smaller available reserves to lend.

7. Location

Local lenders tend to have a specific region of service. National lenders tend to only loan in metropolitan areas. And OPM lenders tend to be more flexible.

But again, each individual lender will have their own preferences. To get the best rate on a hard money loan, find out the lender whose box you best fit in.

The Truth About How to Get the Best Rate on a Hard Money Loan

If you want the best interest rate on a private loan, you really need to shop around.

There’s money in the money, and the less you have to pay for leverage, the more successful your real estate investing career becomes. Hard money is a powerful investing tool, but the wrong interest rate can destroy your project.

You can download our Loan Optimizer here. Send us an email at Info@HardMoneyMike.com if you have any other questions about how to find the right hard money loan. And check out our YouTube channel for more free real estate investing information.

Happy Investing.