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These are several situations where a hard money construction loan is quite appropriate. When an investor or a borrower wishes to either renovate an existing property, make improvements or construct a new structure, approaching a construction hard money mortgage lender can make the loan process simple and flexible. The suitability of hard money loans for construction depends on borrower’s plans for the property after completion and also on his credit and financial profile.

Guidelines for Hard Money Construction Mortgage Loans

The property value after construction or renovation will be used as collateral. The property on which loan is being made is given significance when evaluating a loan package for funding. Hard money construction lenders can accommodate a variety of borrowers including those with bad credit. If the borrower or investor profile doesn’t fit into the strict approval guidelines of traditional real estate construction lending sources like banks and mortgage lenders, the only viable alternative is to approach a hard money lender for a construction hard money loan. When the work to be undertaken on a property is basically renovation or fixing up, then a hard money rehab loan might be more suitable. Other than the purchase price and closing costs, the rest of the loan balance is only released to the investor based on the construction work undertaken on the property. Receipts for the materials, workers need to be submitted to the construction hard money lender before funds can be disbursed. Most lenders do conduct periodic inspections to make sure the construction work is being done according to schedule and plan. Construction draw requests are usually handled in a timely manner by all responsible lenders.

Residential Hard Money Construction Loans

If the property to be built or renovated is a residential property (less than four units) then finding a lender who specializes in residential construction hard money loans is more advisable. These hard money lenders do emphasize good credit as residential underwriting does pay significance to borrower financial profile. Single-family homes, townhouses, mixed-use properties, condos and multi-unit properties with less than four units can be financed through these types of hard money loans.

Commercial Hard Money Construction Loans

All types of commercial properties like office buildings, apartment buildings, hotels/motels, healthcare facilities, malls can be renovated or constructed using hard money commercial mortgages for construction. The after completion value is given more emphasis in commercial hard money construction loans than in residential construction hard money mortgages. Borrower or investor’s individual financial profile is only secondary to collateral on which the loan is made. Construction bridge loans can be appropriate before finding permanent financing. If the work to be undertaken involves just rehabbing or renovating an existing commercial property, then a commercial hard money rehab loan might be more appropriate.

Interest Rates on Hard Money Loans for Construction

Due to the high-risk nature of the properties being financed and the borrowers, hard money construction mortgages typically carry high interest rates. They are generally about 10% – 20% depending on the hard money mortgage lender. When there are compensating factors that reduce the risk profile of the property to be financed, then the interest rates on hard money loans can be negotiated. The time duration of the loan is usually no more than the estimated construction completion period. This duration is even lower if the financing used is a bridge construction loan.