The terms for a hard money loan can vary widely depending on your needs. Direct Investors customizes loan options to fit the needs of our investors, but here are some typical terms you can expect.
Unlike a traditional lender, we do not base interest rates on your credit rating but rather your experience level, the size of the loan, the loan term and other factors. Interest rates typically range from 10% to 14%. We can also defer interest payments to pay off if you do not want to make payments during the rehab process.
Most of our loan programs require a down payment to ensure you have sufficient resources to complete repairs and cover the cost of your loan. In many cases, you will pay for origination and discount points and other costs at closing, although we do allow experienced investors and previous clients to roll their closing costs into the loan.
After you have been approved for your loan and received the first disbursement, you may request additional money to pay for repairs by submitting a Draw Request form. This form identifies the completed repairs and includes copies of invoices to contractors and sub-contractors. After work is inspected, draws are dispersed. Work is usually not paid for in advance. We can also pay contractors directly if you would prefer they submit their invoices to us.
Most hard money loans have a term that ranges from 3 months to 12 months, although we do offer loans that mature in 5 years. The longer the term, the higher the cost or interest rate.
With hard money loans, the loan-to-value is usually lower because the investment is based on the equity in the property, not the borrower's credit or ability to repay. In most cases, we lend up to 70% LTV.
There are additional fees to consider when you apply. The origination fee is typically between 3 and 6 points. All loans require title insurance, a market valuation or Broker Price Opinion, and insurance for the property.
ARV refers to the future value of a property after construction or rehab is finished. This value is usually determined through comparable sales or a future value appraisal, and it is important because it typically determines the maximum loan amount for a rehab loan or construction loan. Using the ARV of a property rather than the current value or purchase price allows you greater leverage and less out-of-pocket costs to complete your project.