What are Typical Hard Money Loan Rates for Investment Properties?
If you don’t qualify for a traditional mortgage loan, you may look to other options, such as a hard money loan. However, knowing the differences between this loan type and others is important. For instance, hard money loans generally have higher rates and different terms. This article will review typical hard money loan rates, what affects your rate, and how to negotiate your loan rate.
Contents of This Article:
- Typical Hard Money Loan Rates
- What May Affect Your Hard Money Loan Rate
- How Is Interest Calculated for Hard Money Loans?
- Can You Negotiate Your Loan Rate?
- Find the Right Hard Money Lender Today
Typical Hard Money Loan Rates
While convenient, typical hard money loan rates are often higher than traditional mortgage loan rates. For investors with good credit, you can generally get a traditional mortgage loan with an interest rate of around 3% to 8%.
However, once you apply for a mortgage loan through a bank or traditional lender, they’ll look at your credit history to ensure you can repay the loan. If you have poor credit, you may get a higher interest rate or get denied for the loan altogether.
Typical hard money loan rates range from 7% to 25% interest, and points range from 1 to 6. Points are another part of your loan amount. For instance, if a lender quotes you 2 points, it means 2% of your loan amount.
So, if you request a $100,000 hard money loan, you’d also pay a $2,000 origination fee. However, that’s not the only fee you’ll have to pay. Read along as we review some other costs associated with Maryland real estate loans.
Other Hard Money Loan Costs
Aside from higher interest rates, if you plan to get a hard money loan, there are more costs to prepare for. Here are a few to keep in mind.
- Origination Fee– You can expect to pay an origination fee, also called points, which we discussed above. Hard money loans generally have higher origination fees than other loans since they involve more risk.
- Underwriter Fee– To secure the property and create a deal with your hard money lender, an underwriter must work out a legally binding agreement between you and the lender. However, the underwriter fee is usually worked into the origination fee.
- Processing Fee– Some lenders have a processing team that handles and prepares documents, ensuring everything is accurate and appropriately executed.
- Property Insurance– Finally, if you’re using a loan to obtain a property, you’ll need some type of insurance. After all, it doesn’t make much sense for lenders to loan money for an unprotected asset.
- Appraisal Fee- The subject property must be appraised and inspected to understand the value as collateral before obtaining a loan.
- Other Fees- Besides all the fees listed above, you can also plan for legal fees, title and escrow fees, and potential extension fees.
What May Affect Your Hard Money Loan Rate
Typical hard money loan rates are pretty high. But what affects your loan rate? Is there a way to get a better rate? Well, a few key factors may affect your hard money loan interest rate.
For instance, your lender considers your down payment, the type of property you’re buying, and the current market conditions. Additionally, they’ll look at your credit score and investing experience, although those factors don’t hold as much weight. Let’s look deeper at some of the main factors affecting typical hard money loan rates.
- Property Type- The property you want to purchase can affect your interest rate. In fact, most lenders look at your property over other factors, like your credit score. “Low-risk” properties generally mean lower interest rates, while “high-risk” properties can result in higher rates.
- Market Conditions- The ever-changing real estate market can influence your interest rate. As such, it’s important to research the market before applying for a loan.
- Down Payment- The larger the down payment, the better your loan terms will likely be. After all, a down payment helps mitigate risks that hard money lenders take on.
- Requested Loan Amount- The amount you request for your hard money loan also affects your interest rate. For instance, the more you want to borrow, the higher your interest rate may be due to the higher risk for the lender.
- Term Length- Additionally, your term length is directly affected by the cost of the loan. Most hard money loans are repaid within one to three years.
- Credit Score- While it’s not the largest determining factor, your credit score can affect your loan rate. As such, if you want a better loan rate, consider improving your credit score.
How Is Interest Calculated for Hard Money Loans?
Now that we’ve gone over typical hard money loan rates and what affects your rate, you may be wondering–how’s it calculated?
Generally, hard money lenders amortize the loan and charge monthly to earn interest and recover the principal amount. Amortization is an accounting technique used to lower the value of a loan or asset over a set period of time.
Hard money lenders charge the interest rate toward the borrowed amount of money, known as the annual percentage rate (APR). However, there are a few ways lenders can provide you with a loan. For instance, there are interest-only loans or principal-and-interest loans.
For interest-only loans, lenders only charge monthly interest on a loan for the previous month. In turn, the principal amount of the loan stays consistent and gets paid at the end of the loan term. Most interest-only loans are short-term and must be repaid within six months to five years.
On the other hand, for a principal and interest loan, the lender charges monthly payments that are shared party toward the interest rate and the remaining principal amount. These types of loans are longer-term, usually 10 or more years.
Can You Negotiate Your Loan Rate?
There are plenty of pros to working with Maryland hard money lenders. For instance, hard money lenders aren’t regulated in the same way as traditional financing institutions. With fewer regulations and rules, loan terms are generally different. You can negotiate these terms, and hard money lenders can accept deals at their discretion.
For instance, if you’re unhappy with the loan rate your lender gives you, you can negotiate it. However, ensuring the deal is favorable for you and the lender, not just you, is essential. For example, if you want to make the deal fair for both parties, you may consider increasing your down payment, paying a higher rate with lower points, or paying your loan back quicker.
While you can always negotiate terms with traditional lenders, negotiating with hard money lenders is generally more straightforward. After all, they’re generally private companies or people that don’t have strict rules or requirements. The most important thing that most hard money lenders look for is a decent return on investment.
Find the Right Hard Money Lender Today
If you want to finance an investment property but don’t want to go the traditional mortgage loan route, consider a hard money loan. Before obtaining your loan, research typical hard money loan rates to see if you benefit from this financing method. Once you’ve done your due diligence, it’s time to find a lender near you.
Luckily, your local Maryland Hard Money Lenders are here to help with your next investment adventure. We work with various investors to make their next project come to life. Contact Maryland Hard Money Lenders today to learn more about our loans and fill out an application.