Hard Money Lenders For New Construction

Hard Money Lenders for New construction

What are Hard Money Loans?

Hard money loans are short-term loans secured by real estate. They are typically used by investors and developers to finance the purchase or construction of a property. Hard money loans are often used for new construction projects because they can be closed quickly and offer flexible terms.

How do Hard Money Loans Work for New Construction?

Hard money loans for new construction are typically structured as interest-only loans with a balloon payment due at the end of the loan term. The loan amount is based on the after-repair value (ARV) of the property, which is the estimated value of the property once construction is complete. The lender will typically require a down payment of 20-30% of the ARV.

The loan proceeds are disbursed in draws as construction progresses. The borrower will need to submit a draw request to the lender, which will then inspect the property to ensure that the work has been completed. Once the lender approves the draw request, the funds will be disbursed to the borrower.

What are the Benefits of Using Hard Money Loans for New Construction?

There are several benefits to using hard money loans for new construction projects:

Speed: Hard money loans can be closed quickly, typically within a few weeks. This can be a major advantage for developers who need to start construction quickly.

Flexibility: Hard money lenders are more flexible than traditional lenders when it comes to loan terms. They may be willing to finance a higher percentage of the ARV and may offer longer loan terms.

No credit score requirements: Hard money lenders typically do not have minimum credit score requirements. This makes them a good option for borrowers who may not qualify for a traditional loan.

What are the Risks of Using Hard Money Loans for New Construction?

There are also some risks to using hard money loans for new construction projects:

High interest rates: Hard money loans typically have higher interest rates than traditional loans. This is because they are considered to be riskier loans.

Short loan terms: Hard money loans typically have short loan terms, typically 6-12 months. This can make it difficult for developers to complete construction on time and may result in the need to refinance the loan.

Balloon payments: Hard money loans typically have balloon payments due at the end of the loan term. This can be a major financial burden for developers if they are not able to sell the property or refinance the loan.

How to Find a Hard Money Lender for New Construction

There are many hard money lenders that offer loans for new construction projects. You can find them by searching online or by contacting a real estate agent or mortgage broker. When choosing a hard money lender, it is important to compare interest rates, loan terms, and fees. You should also make sure that the lender has a good reputation and is experienced in lending for new construction projects.

Tips for Using Hard Money Loans for New Construction

Here are some tips for using hard money loans for new construction projects:

Have a solid business plan: Before you apply for a hard money loan, you should have a solid business plan in place. This will help you convince the lender that you are a good risk.

Shop around for the best rates: Compare interest rates and loan terms from several different lenders before you choose a loan.

Be prepared to make a down payment: Hard money lenders typically require a down payment of 20-30% of the ARV.

Make sure you can afford the payments: Hard money loans typically have high interest rates. Make sure you can afford the monthly payments before you take out a loan.

Have a plan for repaying the loan: Hard money loans typically have short loan terms. Make sure you have a plan for repaying the loan before the balloon payment is due.

Conclusion

Hard money loans can be a good option for developers who need to finance new construction projects. However, it is important to understand the risks and benefits of using hard money loans before you make a decision.

hard money lenders for new construction