WHAT TO EXPECT DURING THE HARD MONEY LOAN APPLICATION PROCESS
Things To Think About When Applying
We know what it’s like. You’ve decided to jump into the fix-and-flip pool and you feel like all of the lending rules, guidelines, matrices, documentation being thrown at you are like anvils instead of life preservers. Believe me, we really do get it. We started in the field before moving into finance. And today, Black Label Capital gets approached by people swimming in confusion. Some don’t even know what type of loan they may need. They’ll call us asking for all different type of loans; we’ve been asked to loan on everything from vehicles to business lines of credit to hotels. So first make sure we do your loan, we specialize in short term ground up construction, fix and flip and bridge loans. And while we would love to be able to help everyone, we want to focus on what we do great – and that is investment loans for single family residences.
What to Expect During the Hard Money Loan Application Process
When you’re in need of fast financing for real estate, a hard money loan can be a viable solution. These loans, offered by private lenders, are secured by the property itself and are known for their quick approval times compared to traditional bank loans. If you’ve ever applied for a home mortgage for your primary residence, we understand how intimidating it can be. That’s why it’s important to realize one of the greatest things about hard money lending is we are not considered a mortgage lender. We are actually a business lender who lends on real estate. And while that may sound like almost the same thing, there is actually a huge difference. Because we are not bound by all of the federal rules and regulations of a mortgage lender, we can move much quicker and with a lot less documentation. If you’re new to hard money lending, the application process can seem unfamiliar. It may even seem like we are forgetting to ask for things (see the comment above about how we are not a mortgage lender). So, let’s take a quick trip on the good ship Hard Money Lending to give you a step-by-step guide to help you navigate through hard money loan application process.
Initial Inquiry and Consultation
The first step is reaching out to a hard money lender for an initial consultation. This is your chance to discuss the project you’re seeking funding for—whether it’s a fix-and-flip, new construction, or bridge loan—we want to make sure your loan is a great partnership with Black Label Capital.
What you need to be prepared with:
- Basic details about the property (location, purchase price, repair costs, estimated value after repairs)
- Your experience with real estate investments (especially important for large-scale projects)
- The timeline for your project
At this stage, you’ll get a rough idea of the loan terms, such as interest rates, loan-to-value (LTV) ratio, and fees. Hard money lenders usually offer flexible terms, but they also come with higher interest rates compared to traditional loans.
Loan Application Submission
It’s time to submit a formal loan application. The process is often much simpler and faster than traditional bank loans, with less emphasis on your personal credit score. Our application is available in the top right of our webpage by clicking apply now on BlackLabelCapital.com
Information typically required:
- Details about the property, including appraisal or estimates of value
- Purchase contract (if you’re buying a property)
- Your business plan or project scope (especially for fix-and-flip or construction projects)
- Personal identification and proof of assets
Since the property is the main asset securing the loan, the lender is more focused on the value of the property and your ability to execute the project.
Property Appraisal and Underwriting
After submitting your application, the lender will usually require an appraisal or inspection of the property. This is a critical step, as the loan amount is heavily based on the property’s current value and its projected value after any repairs or improvements (often referred to as the After Repair Value, or ARV).
The underwriting process for hard money loans is generally quicker than that of traditional loans, as lenders primarily evaluate the property rather than your financial background. However, some lenders may still review your personal financial situation, especially if it’s a larger loan or if the project carries more risk.
Loan Approval and Terms Finalization
Once the property’s value is confirmed, and the lender is satisfied with your project details, you will receive formal loan approval. This will include a detailed loan agreement outlining the terms, including:
- Loan amount: Typically, 65-75% of the property’s value or ARV
- Interest rate: Often higher than traditional loans, ranging from 8-15%
- Points/fees: Lenders often charge “points” (2-5% of the loan amount) upfront as origination fees
- Repayment term: Usually shorter than traditional loans, typically 6 to 12 months
Take the time to review the terms carefully, as hard money loans are designed for short-term financing and come with specific requirements and conditions.
Funding and Closing
Once all the documents are signed and the terms are agreed upon, the loan is funded. This step happens quickly—often within a week or less. The funds are usually wired to an escrow account or directly to the borrower, depending on the type of transaction.
You’ll then proceed to the closing, much like any other real estate transaction. In most cases, hard money lenders disburse funds in installments (or “draws”) based on project milestones, especially for construction or renovation projects.
Loan Servicing and Repayment
Once you’ve received the funds, you’ll begin making interest payments as per the loan agreement. Most hard money loans are structured with interest-only payments during the term of the loan, with the full principal due at the end of the term (a balloon payment).
Since these loans are typically short-term, your exit strategy is crucial. Most borrowers plan to either refinance the property with a traditional loan once the project is complete or sell the property to pay off the loan.
You’ll then proceed to the closing, much like any other real estate transaction. In most cases, hard money lenders disburse funds in installments (or “draws”) based on project milestones, especially for construction or renovation projects.
Conclusion
The hard money loan application process is straightforward and efficient compared to traditional mortgage lending. The focus on property value rather than personal creditworthiness allows for quick approvals and fast funding, making hard money loans a popular choice for real estate investors who need capital fast. However, it’s important to understand the loan terms and have a clear repayment strategy to avoid complications down the road.
By being prepared and understanding the expectations, you can secure the funding you need and move forward confidently with your real estate project. We hope we have offered you some invaluable information and helped ease some of your stress and anxiety. Should you have any additional questions, or are ready to pull the trigger on that project, please to not hesitate to schedule a call with Tim or Jeff. We look forward to speaking with you.
