Hard Money Lenders Alabama: Flexible Loans

Published on July 18th, 2024
10 min read

Joseph Gordon Editor
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Joseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.

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Are you looking to fund your next real estate venture in Alabama with a hard money loan? Whether you’re planning to flip a historic home in Montgomery or invest in a rental property in Birmingham, hard money lenders in Alabama offer the speed and flexibility you need.

Hard money loans are an alternative to conventional loans and are particularly beneficial for those with tight project timelines, limited capital, or various credit issues.

If you’re not a real estate investor but need to bridge the timing gap between buying and selling a home, we’ll share some alternatives to help you leverage your home’s equity.

This article will guide you through the basics of hard money lending in Alabama, helping you decide if this financial tool is appropriate for your real estate investment or home-buying goals.

What is a hard money lender?

A hard money lender is a private individual or company that offers short-term loans secured by real estate. Unlike traditional lenders, who focus on the borrower’s creditworthiness and income, hard money lenders in Alabama prioritize the value of the property used as collateral.

These loans are popular among real estate investors, such as house flippers and those buying rental properties, who need quick access to funds and flexible terms. Hard money lenders determine loan amounts based on the after-repair value (ARV), which is the estimated value of a property after renovations. They typically lend a percentage of the ARV to ensure the investment’s profitability and security.

Hard money loans generally have higher interest rates, ranging from 8% to 15%, and shorter repayment periods, usually between 6 to 24 months. Additional costs can include origination fees, closing costs, and points, which are a percentage of the loan amount paid upfront. If a borrower fails to repay a hard money loan, the lender can seize the property to recover the investment.

How does a hard money loan work?

For real estate investors needing fast and flexible financing, hard money loans can be an excellent option. Here’s a breakdown of how these loans work:

Short-term loan: These loans usually have a 6–24 months repayment period, unlike long-term 30-year mortgages.
Faster funding option: Hard money loans can be approved within days, compared to the 30 to 50 days typical for a traditional mortgage.
Less focus on creditworthiness: Approval relies more on the property’s value than the borrower’s credit score.
More focus on property value: Loans are based on the loan-to-value ratio of the property being used as collateral.
Not traditional lenders: These loans are provided by individual investors or private lending companies, not traditional banks.
Loan denial option: They’re often used by those with poor credit who have been denied a mortgage but possess significant home equity.
Higher interest rates: Due to higher risk, hard money loans come with higher interest rates.
Might require larger down payments: Borrowers might need to provide a larger down payment, sometimes up to 20%–30%.
More flexibility: With fewer regulations, hard money lenders can offer flexible terms, including adjustable credit score requirements and debt-to-income (DTI) ratios, helping avoid foreclosure.
Potential for interest-only payments: Some hard money loans may include options for interest-only or deferred payments initially.

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What are hard money loans used for?

Hard money loans address specific financing needs in the Alabama real estate market. Here’s how they are typically utilized:

Flipping a house
For Alabama investors focused on flipping homes, hard money loans provide quick access to cash for purchasing and renovating properties. These loans help flippers acquire properties, make necessary renovations, and resell them for profit quickly.

Buying an investment rental property
Investors can quickly purchase and repair rental properties, allowing landlords to start generating rental income faster than with traditional loans.

Purchasing commercial real estate
These loans are often used in commercial real estate transactions due to their flexibility and quick closing times, which are important for securing valuable investments.

Borrowers who can’t qualify for traditional loans
Individuals with significant home equity but poor credit often use hard money loans. These loans focus on the asset’s value rather than the borrower’s credit score.

Homeowners facing foreclosure
Homeowners nearing foreclosure can use hard money loans to refinance debts or buy time to sell the property, avoiding foreclosure marks on their credit reports.

How much do hard money loans cost?

Hard money loans generally cost more than traditional loans due to the higher risk for lenders and the convenience of quick, flexible funding. Typical costs include:

Interest rates: 8% to 15% or higher, based on risk assessment.
Origination fees: 1% to 5% of the loan amount.
Closing costs: Legal, appraisal, and administrative fees.
Points: A percentage of the loan amount charged upfront.

Online calculators can help estimate these costs.

Alternatives to working with hard money lenders

If you’re a homeowner looking to leverage your home’s equity, here are a few alternatives to consider:

Take out a second mortgage
A home equity loan or HELOC can provide funds at a lower interest rate than hard money loans.

Cash-out refinance
Refinancing your existing mortgage allows you to borrow cash for new investments, often at lower interest rates. Learn more about refinancing.

Borrow from family or friends
Personal loans from family or friends can offer flexible terms and potentially lower or no interest, making it a cost-effective option.

Use a government-backed loan program
Programs like those offered by the FHA, VA, or USDA can help you purchase homes with lower down payments and reduced interest rates.

Peer-to-peer loan
Platforms like LendingClub or Prosper connect borrowers with individual investors, offering an alternative to traditional loans.

Specialized loan programs
Consider loans tailored for specific needs, such as fixer-uppers or refinancing investment properties, which might have better terms than hard money loans.

Request a seller financing option
Some sellers may agree to finance the purchase directly, reducing closing costs and simplifying qualification.

How to buy before you sell

Sometimes, the perfect listing pops up when you’re least expecting it. Maybe it’s a rare mid-century modern home or a two-bedroom condo within walking distance of your job.

If you’re an Alabama homeowner who wants to buy a new home before selling your current one, HomeLight offers an innovative solution that streamlines the process.

The Buy Before You Sell (BBYS) program allows you to leverage the equity in your existing home to make a stronger, non-contingent offer on a new property. If your home qualifies, you can get your equity unlock amount approved in 24 hours or less, with no cost or commitment required. Once approved, you can confidently purchase your next home and then sell your current one vacant, avoiding the hassle of moving twice.

Here’s how HomeLight Buy Before You Sell works:

Although there’s a flat fee of 2.4% of your current home’s sold price, the potential savings you could see in other areas might outweigh the cost. For example, you might save on moving expenses, temporary housing, and even the final purchase price of your new home. On top of that, HomeLight’s BBYS fees are typically much lower than the interest rates on bridge loans, which currently range from 9.5% to 12%.

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A home that is building equity for its owners.

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3 top hard money lenders in Alabama

Lima One Capital, Alabama

Based in Greenville, SC, Lima One Capital offers new construction, fix-and-flip, rental property, and multifamily loans. It also offers market insights and case studies to inform clients about the real estate market.

Lending clientele: Residential and development real estate investors

Loan criteria: Loan program terms vary; for instance, FixNFlip loans can cover up to 92.5% of LTC and 75% of LTV, while Bridge Plus loans may offer up to 80% LTV.

Lima One Capital has a 4.0 Google star rating and BBB-accreditation since 2013. A recent review states, “Choose Lima One for rental property mortgages; they offer competitive rates and handle issues quickly and satisfactorily.”

limaone.com/alabama-hard-money-lender

800-390-4212

Easy Street Capital, Alabama

Easy Street Capital, headquartered in Austin, Texas, is a solid choice for real estate investors who hope to capitalize on Ohio’s market. They specialize in hard money loans tailored to investors nationwide, including Alabama.

Lending clientele: Real estate investors, residential and development properties

Loan criteria: Depends on the loan program; Rates starting at 5.99% to 11.9%

Easy Street Capital holds a 4.7-star Google rating with over 170 reviews. A recent client shared, “Working with Easy Street Capital was a delight! As a newbie, I found them kind, helpful, and patient, despite unforeseen delays. Amanda Hart, my initial contact, was amazing and a key reason I chose them. She guided me with the care and dedication one would give to a family member.”

easystreetcap.com/hard-money-loan-alabama

866-828-0062

Longhorn Investments, Alabama

Founded in 2008, Longhorn Investments has funded thousands of hard money loans and operates a title company and real estate law practice from its corporate office. They offer short-term hard money acquisition and renovation capital in major metropolitan areas spanning Texas, Tennessee, Missouri, Indiana, Ohio, Arkansas, Alabama, New Mexico, Georgia, and North Carolina.

Lending clientele: Residential and commercial real estate investors

Loan criteria: Up to 70% of ARV for flips and up to 75% of ARV for rentals, excluding points and fees, with funding not exceeding 100% of the cost. Proof of refinance is required.

Longhorn Investments maintains a 5.0 Google rating from 224 reviews. One client noted, “Working with Longhorn was excellent. They funded quickly, and their application process is top-notch. Communication was smooth throughout—I highly recommend them.”

longhorninvestments.com

214-420-7330

Should I partner with a hard money lender in Alabama?

Deciding whether a hard money loan is right for you in Alabama depends on your real estate investment goals. These loans are best suited for real estate investors needing quick funding or those who can’t secure traditional financing. Hard money loans offer fast, flexible funding but have higher costs and shorter repayment terms.

HomeLight’s Buy Before You Sell program is a great alternative for homeowners looking to leverage their home’s equity. It allows you to pay a small flat fee instead of high interest rates, offering a more competitive deal and an easier move.

Consider your long-term strategy and consult a financial advisor to ensure it aligns with your goals. To connect with investor-friendly real estate agents in Alabama who have access to trusted hard money lenders, HomeLight can introduce you to top professionals in your area.

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