In Jacksonville, securing the right financing is important, especially if you’re an investor looking for a flexible loan option. That’s where a hard money loan might come in handy. Whether you’re flipping homes in neighborhoods like Riverside or purchasing investment properties near San Marco, these loans offer quicker funding and more adaptable terms than traditional mortgages. However, they also come with higher costs and specific qualifications.
In this guide, we’ll break down what hard money lenders do, the loan process, common uses, and costs. We’ll also compare alternative financing options to help you determine if a hard money loan is the best fit for your real estate goals.
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A hard money lender provides short-term loans, typically secured by real estate, for those who may not qualify for traditional financing. These lenders usually work with clients like house flippers or investors purchasing rental properties. Instead of focusing on credit scores, they determine loan amounts based on the property’s after-repair value (ARV), which is the estimated value of a property after renovations.
Hard money loans often come with higher interest rates and fees than traditional loans due to their higher risk and quicker turnaround times. Borrowers are expected to repay the loan within a short period, usually one to three years. If a borrower fails to repay, the lender may take possession of the property used as collateral.
How does a hard money loan work?
In Jacksonville, hard money loans are structured differently from traditional loans, offering borrowers quicker access to capital but with certain trade-offs. Here’s how they generally work:
Short-term loan: Hard money loans are typically designed for short-term use, usually lasting between six months and three years, giving borrowers time to flip a property or complete a project.
Faster funding option: These loans can be funded much faster than traditional mortgages, sometimes in just a few days, which is ideal for competitive markets like Jacksonville.
Less focus on creditworthiness: Unlike traditional lenders who rely heavily on your credit score, hard money lenders focus more on the value and potential of the property you’re buying.
More focus on property value: Loan amounts are often based on the loan-to-value ratio or ARV, making the property’s potential more critical than your financial history.
Not traditional lenders: Hard money lenders are usually private individuals or companies, not traditional banks, offering more flexibility but often at a higher cost.
Loan denial option: While faster and more flexible, hard money lenders may still deny loans if they believe the project or property has too much risk.
Higher interest rates: These loans usually come with higher interest rates, typically ranging from 8% to 15%, reflecting the increased risk for lenders compared to a 30-year traditional mortgage.
Might require larger down payments: Hard money lenders may require down payments between 20%–30%, depending on the risk associated with the property and borrower profile.
More flexibility: Lenders may allow for different repayment structures, such as interest-only payments, giving borrowers flexibility in their cash flow during the loan period.
Potential for interest-only payments: Some hard money lenders offer interest-only payment options during the loan term, which can lower your initial monthly payments but require a larger final payment when the loan term ends.
