Detroit Hard Money Lenders: Speedy Real Estate Loans

What is a hard money lender?

A hard money lender is a private individual or company that provides short-term loans secured by real estate. Unlike traditional banks, these lenders look at the property’s value rather than the borrower’s credit score. Most people who turn to this type of financing are house flippers and rental property buyers who need quick, flexible financing.

Loan amounts are based on the after-repair value (ARV) of the property, which is its estimated value post-renovation. Typically, lenders provide a percentage of the ARV to ensure profitability and security.

Interest rates for hard money loans range from 8% to 15%, with terms usually between six and 24 months. Additional costs may include origination fees, closing costs, and points (a percentage of the loan amount borrowers pay at closing). If you fail to repay the loan, the lender will take possession of the property to recoup their investment.

How does a hard money loan work?

If you’re in Detroit and need quick, flexible financing for a real estate project, hard money loans can be a solid option. Here’s how these loans typically work:

What are hard money loans used for?

Hard money loans are a useful option in Detroit’s real estate scene, especially if you need fast funding or can’t get approved for a traditional loan. Here are some scenarios where they’re commonly used:

• Flipping a house: If you’re flipping homes in Detroit, hard money loans give you quick financing so you can buy and renovate properties fast and turn a profit sooner
• Buying an investment rental property: These loans help investors acquire and rehab rental properties. Getting funds fast helps you start renovations sooner and bring in rental income quicker.
• Purchasing commercial real estate: Hard money loans make it easy to move quickly and stay flexible when you’re buying commercial properties.
• Seeking alternatives to traditional loans: If you’ve got a lot of equity but not the best credit, you can still go for a hard money loan. Since this type of financing is based on the property’s value, it’s easier to qualify for, even with credit issues.
• Facing foreclosure: When you’re facing foreclosure, a hard money loan can help you refinance your debt or give you extra time to sell your property. It’s a way to avoid foreclosure and protect your credit.

How much do hard money loans cost?

Hard money loans usually cost more than traditional loans because they’re riskier and move faster. Common costs include:

• Interest rates: These can be 8% to 15% or more.
• Origination fees: Lenders often charge 1% to 5% of the loan amount.
• Closing costs: These can include various fees, such as legal and appraisal fees.
• Points: Lenders might charge upfront points, a percentage of the loan amount.

Use online hard money loan calculators to better estimate and prepare for costs.

Alternatives to working with hard money lenders

Hard money loans can be helpful when you need funding quickly, but they’re not your only option. Depending on your situation, there may be other ways to finance a property with lower costs or terms that work better for you. Here are a few alternatives worth looking into before going with a hard money lender:

• Take out a second mortgage: A home equity loan or a home equity line of credit (HELOC) can offer lower interest rates and provide necessary funds more affordably than hard money loans.
• Cash-out refinance your home: This method allows you to refinance your current property and withdraw cash to fund new investments, usually at lower interest rates.
• Borrow from family or friends: Personal loans from family or friends can provide flexible repayment options and lower interest rates, making them a cost-effective choice.
• Use a government-backed loan program: Government programs from the FHA, VA, or USDA can help you buy homes with reduced down payments and interest rates.
• Consider a peer-to-peer loan: These loans, through platforms like MeridianLink or Funding Circle, can connect you with individual investors who might offer more favorable terms.
• Explore specialized loan programs: Look into loans specifically designed for fixer-uppers or refinancing investment properties, which can help replace an existing hard money loan.
• Request a seller financing option: Some sellers may agree to finance the purchase, leading to lower closing costs and easier eligibility criteria.

How to buy before you sell

If you’re considering a hard money loan or a similar financing option to buy a new home before selling your current one, it may make more sense to explore Buy Before You Sell programs.

HomeLight’s Buy Before You Sell (BBYS) helps qualified homeowners unlock equity from their current home, giving them funds to put toward a new purchase before selling. Once they move into the new home, they can list the old one with more flexibility and less pressure to sell quickly.

With this program, you’ll not only leverage your current home’s equity, but also make a competitive, non-contingent offer on a new property. HomeLight can approve your equity unlock amount within 24 hours, with no upfront cost or commitment. This enables you to secure your next home and sell your existing one vacant, avoiding the inconvenience of moving twice.

Watch this video below to know how HomeLight Buy Before You Sell works:

The program charges a flat fee based on your current home’s sale price. However, potential savings on moving costs, temporary housing, and the purchase price of your new home can make this worthwhile. Moreover, HomeLight’s BBYS fees are generally lower than the interest rates on bridge loans, which range from 9.5% to 12%.

Top 3 hard money lenders in Detroit

Detroit has plenty of options for fast, flexible hard money financing. These lenders can help you secure investment properties or handle quick renovations. Here are three of the top hard money lenders in the area.

Investing in real estate?

Hire an investor-friendly real estate agent who can help you get access to off-market properties at a discount and assess potential rental income based on market trends. HomeLight can connect you with investment property specialists at no cost.

Get Started

Should I partner with a hard money lender in Detroit?

Whether a hard money lender in Detroit is right for you depends on your situation and what you’re trying to do with your real estate investments. Hard money loans are great for investors who need quick, flexible funding and can handle higher costs and shorter payback periods. If that sounds like it fits your goals, a hard money loan could be a smart move for your Detroit properties.

If you’re planning to tap into your home equity, HomeLight’s Buy Before You Sell program presents a practical alternative. Instead of incurring high interest rates, this program charges a flat fee, helping you make a stronger offer and facilitating a seamless move.

To connect with real estate agents in Detroit who are well-versed in financing options, whether hard money loans or buy-before-you-sell programs, HomeLight can introduce you to top professionals in your area.

Header Image Source: (iriana88w/ Depositphotos)

Editor’s note: This post is for educational purposes only and should not be considered financial advice. HomeLight encourages you to consult your own advisor.