What Types of Properties Qualify for Hard Money Loans?

Hard money loans are an excellent resource for real estate investors. Not only can they be used to fund unconventional properties, but they are quickly funded and easy to qualify for. However, certain properties work well with hard money loans, and some don’t. Today, we’re discussing what types of properties qualify for hand money loans and how to use them to fund your next real estate investment. 

Contents of This Article: 

• Why Do People Use Hard Money Loans?
• What Types of Properties Qualify for Hard Money Loans?
• How to Get a Hard Money Loan
• Find a Reputable Lender Near You

Why Do People Use Hard Money Loans?

Investors use hard money loans for many reasons. Whether they don’t qualify for traditional financing or need a fast and efficient short-term solution, hard money loans come in handy in several scenarios. Here are the main reasons investors choose hard money over traditional financing. 

• Faster Funding- Most lenders can approve and fund a loan within just a few days, which is helpful for investors who need to close on a property quickly.
• Easier Approval- Hard money loan qualifications are more relaxed, as lenders pay less attention to borrowers’ credit scores, income, and debt-to-income ratio and more on the value of the property being used as collateral.
• Short-Term Investments- Investors prefer hard money for fix-and-flip projects because they don’t need long-term financing–just a short-term loan to complete the project.
• Unconventional Properties- Traditional banks avoid lending on unconventional properties, but hard money loans can be used for fixer-uppers, land, mixed-use buildings, and distressed properties.
• Bridge Financing- Investors and developers can use hard money loans as bridge loans to cover costs until they secure long-term financing.

What Types of Properties Qualify for Hard Money Loans?

Hard money loans can be used for a variety of property types, making them a great, flexible financing option for real estate investors. Unlike other loan types, which typically have strict guidelines, hard money loans are asset-based, meaning approval depends on the value of the property rather than the borrower’s credit score or income. Here are some of the main types of properties that qualify for hard money loans. 

1. Residential Properties
2. Commercial Real Estate
3. Mixed-Use Properties
4. Land or New Construction Projects
5. Short-Term Rentals

Residential Properties

Hard money loans are commonly used for fix-and-flip projects, rental properties, and multi-family units, which are all residential property types. Investors use hard money loans to quickly acquire, renovate, and sell or rent out homes without the long and dreaded approval process of traditional mortgages. 

Commercial Real Estate

Investors can also use hard money loans for commercial properties, such as office buildings, retail spaces, industrial warehouses, or hotels. In fact, these types of loans can be ideal for investors looking for quick capital to buy or improve income-generating properties. 

Mixed-Use Properties

Mixed-use properties are a combination of residential and commercial spaces. For instance, it could be apartment units above a retail storefront. That said, traditional lenders usually hesitate to finance these, so hard money loans offer a good alternative for investors looking to buy these unique spaces. 

Land or New Construction Projects

Investors can buy land, invest in new construction, and fund major renovations with hard money loans. That said, many developers and builders use them to quickly secure funding for projects that may not qualify for traditional financing. However, every lender is different, and most lenders base their lending decisions on your exit strategy and your ability to repay the loan.

Short-Term Rentals

Hard money loans can be used to purchase short-term rentals like Airbnb, Vrbo, or other vacation rental platforms. These types of properties can be hard to finance through a traditional mortgage lender, so hard money loans are a viable option. They allow investors to acquire and renovate profitable short-term rental properties in high-demand locations. 

How to Get a Hard Money Loan

If you’re looking to invest in any of these types of properties and want to get a hard money loan, there are specific steps you’ll want to take. 

• Find the Right Property- First things first, you’re probably looking to get a loan because you have an investment property in mind. Before applying for a hard money loan, find the right property for your investment plan.
• Choose a Reputable Lender- Once you’ve chosen a property, you’ll need to find a lender–and not just any lender. Do your research to find a lender with experience and good reviews from previous clients.

• Prepare Your Loan Application- When you find a lender, they’ll likely tell you what you need for your loan application. Make sure you have all the information they need ready to go to speed up the approval process.
• Get an Appraisal and/or Inspection- Your lender will likely require an appraisal or inspection to determine the property’s current and after-repair value (ARV).
• Review Loan Terms- It’s crucial that you carefully review your hard money loan terms and conditions. Remember, hard money loans typically have short repayment terms, higher interest rates, and additional fees (depending on your lender).
• Close the Loan and Receive Funds- Once your application is approved, you can sign a loan agreement and close the deal. From that point, funds are typically available within a few days.

Find a Reputable Lender Near You

If you’re an investor who’s curious about hard money loans, it’s essential to know what types of properties work best with them. Most often, they’re used for fix-and-flip projects, where investors purchase a distressed property, fix it up, and sell it for profit within a year or two. However, there are several types of properties that could be funded with hard money. 

Need a hard money loan for a property near Baltimore? Look no further than Maryland Hard Money Lenders. Our team of real estate loan professionals can help you get the capital you need quickly and efficiently. Learn more about our lending process and fill out our initial loan application today!