Timing can be everything in the fast-paced real estate market of Washington, D.C. For buyers and investors looking to capitalize on an investment quickly, traditional loans might not cut it. This is where hard money loans come into play. They offer a different route to securing the funds needed for various real estate transactions in the nation’s capital. Whether you’re eyeing a rowhouse in Capitol Hill or considering a fixer-upper in Shaw, hard money loans can provide the speed and flexibility you need.

Hard money loans aren’t your everyday mortgages; they cater to those who need financing fast and aren’t put off by higher interest rates. If you’re in the D.C. market and want to learn how these loans work, when they’re most useful, and what they might cost, this guide will walk you through the essentials to help you make an informed decision.

What is a hard money lender?

A hard money lender is a private entity or individual that provides short-term loans secured by real estate. Unlike banks that prioritize a borrower’s financial history, these lenders place more importance on the property’s value. This makes hard money loans appealing to house flippers and rental property investors needing swift financing.

Hard money lenders use the after-repair value (ARV), which is the projected worth of a property after renovations, to decide how much to lend. They typically offer a percentage of this ARV to minimize their risk.

These loans come with higher interest rates, usually between 8% and 15%, along with fees like origination costs. If the borrower defaults, the lender can take ownership of the property to recover the funds.

How does a hard money loan work?

If you’re a real estate investor in Washington, D.C., needing fast and flexible financing, hard money loans might be the right fit. Here’s a breakdown of how these loans work and what you can expect:

• Short-term loan: These loans typically have a repayment period of 6–24 months, much shorter than a 30-year conventional mortgage. In some cases, terms can extend up to 36 months.
• Faster funding option: Unlike traditional loans that can take 30 to 50 days to process, hard money loans can be approved in just a few days, allowing investors to move quickly.
• Less focus on creditworthiness: Hard money lenders place less emphasis on your credit score and financial history, focusing more on the property itself.
• More focus on property value: The loan amount is primarily based on the loan-to-value ratio of the property, making the property’s value crucial for approval.
• Not traditional lenders: These loans come from private investors or companies rather than banks, offering more tailored terms to meet individual needs.
• Loan denial option: Hard money loans are often used by individuals with poor credit who have been denied traditional mortgages but have significant home equity.
• Higher interest rates: Due to the increased risk, hard money loans have higher interest rates than conventional mortgages.
• Might require larger down payments: Borrowers may need a larger down payment, often ranging from 20%–30% of the property’s value.
• More flexibility: With less regulation than traditional lenders, hard money lenders can be more flexible with debt-to-income criteria and credit scores, potentially offering solutions to avoid foreclosure.
• Potential for interest-only payments: Some hard money loans allow for interest-only or deferred payments at the beginning of the loan term, easing the initial cash flow.