Hard Money Lenders Birmingham: What You Need to Know

Published on July 30th, 2024
11 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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Finding the right financing option for your real estate investments in Birmingham can be challenging, especially when time is a factor. Whether you’re looking to flip a house in Crestwood or invest in rental properties in Five Points South, knowing the ins and outs of hard money loans can make all the difference.

Hard money loans offer a quicker, less restrictive way to secure funding than traditional loans. They’re particularly useful for Birmingham investors who want to capitalize on fast-moving opportunities in the city’s hot real estate market.

In this guide, we’ll cover everything you need to know about working with hard money lenders in Birmingham, from understanding how these loans work to deciding if they’re the right fit for your investment strategy.

Editor’s note: This post is for educational purposes and is not intended to be construed as financial advice. HomeLight always encourages you to consult your own advisor.

What is a hard money lender?

A hard money lender provides short-term loans backed by real estate, primarily serving clients like house flippers and real estate investors. These lenders focus more on the property’s value than the borrower’s creditworthiness. The loan amount is often determined by the property’s after-repair value (ARV), which is the estimated value of the property after renovations.

Interest rates for hard money loans are higher than traditional loans, typically ranging from 8% to 15%. Borrowers also face additional fees such as origination and closing costs. If a borrower fails to repay the loan, the lender can take possession of the property, making it crucial to have a solid repayment plan.

How does a hard money loan work?

Hard money loans in Birmingham offer some key benefits over traditional loans—with some caveats. Here’s a breakdown of how they work:

Short-term loan: These loans typically last 6 to 12 months, making them suitable for quick projects.
Faster funding option: Unlike traditional loans that can take 30 to 50 days to process, hard money loans can be approved and funded within a few days.
Less focus on creditworthiness: Credit scores are less of a factor; the loan approval relies more on the property’s value.
More focus on property value: Lenders are more concerned with the property’s loan-to-value ratio and its potential after repairs.
Not traditional lenders: These loans are provided by private individuals or companies, not traditional banks.
Loan denial option: Lenders can deny loans if the property doesn’t meet their criteria.
Higher interest rates: Rates can range from 8% to 15%, reflecting the higher risk for lenders.
Might require larger down payments: Borrowers may need to put down 20%–30% of the property’s value.
More flexibility: Terms and conditions can be more negotiable than traditional loans.
Potential for interest-only payments: Borrowers might only need to pay interest until the loan term ends, with the principal due in full at the end.

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What are hard money loans used for?

Hard money loans can be useful depending on the situation, including:

Flipping a house: Ideal for flipping homes, these loans provide quick capital to purchase and renovate properties for resale.

Buying an investment rental property: Investors can secure funding for rental properties, enhancing their portfolios quickly.

Purchasing commercial real estate: These loans are beneficial for acquiring commercial properties that traditional lenders might avoid due to their condition.

Borrowers who can’t qualify for traditional loans: Hard money loans offer an alternative for those with difficulty securing conventional financing.

Homeowners facing foreclosure: Those at risk of foreclosure can use these loans to settle debts and avoid losing their homes.

How much do hard money loans cost?

The cost of hard money loans is typically higher than traditional loans due to the increased risk lenders undertake. Here are some typical costs associated with hard money loans:

Interest rates: These can range from 8% to 15% or higher, depending on the lender’s risk assessment.
Origination fees: Lenders may charge 1% to 5% of the total loan amount as an origination fee.
Closing costs: Additional fees at closing can include legal fees, appraisal fees, and other administrative costs.
Points: Lenders might charge points (a percentage of the loan amount) upfront, which can add to the initial cost of obtaining a loan.

There are many online calculators available to estimate your costs.

Alternatives to working with hard money lenders

If you’re considering different ways to leverage your home’s equity, here are a few options to explore:

Take out a second mortgage: A home equity loan or HELOC can provide the needed funds at a lower interest rate.
Cash-out refinance: This option allows you to refinance an existing property, pulling out cash to finance your new investment.
Borrow from family or friends: A personal loan from family or friends can offer flexible repayment terms and potentially lower interest rates.
Use a government-backed loan program: Programs offered by the FHA, VA, or USDA can help buyers purchase homes with lower down payments and reduced interest rates.
Peer-to-peer loan: These loans are provided by individual investors through lending platforms, functioning similarly to hard money loans but often with different terms.
Specialized loan programs: Consider specialized loans for fixer-uppers or investment property refinancing if you already have a hard money loan and seek to replace it.
Request a seller financing option: In some cases, sellers may agree to finance the purchase themselves, resulting in lower closing costs and less stringent eligibility requirements.

How to buy before you sell

HomeLight’s Buy Before You Sell program is designed to help homeowners purchase a new home before selling their current one. This program offers the convenience of moving into your new home without the stress of selling first.

With Buy Before You Sell, HomeLight advances the funds needed to buy your new home, allowing you to move in and sell your old home at your own pace.

This program benefits those looking to avoid the double mortgage burden and the rush to sell quickly. Costs for the program are competitive, with interest rates typically ranging from 9.5% to 12%. You can learn more about the program and how it can help you buy a new home before selling your current one.

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 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.

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3 top hard money lenders in Birmingham

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. With expertise across residential and commercial assets, 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.

longhorninvestments.com

214-420-7330

Lima One Capital, Alabama

Lima One Capital, based in Greenville, SC, offers new construction, fix-and-flip, rental property, and multifamily loans. It prioritizes customer experience through investments in people, processes, and technology. Beyond loan programs, it offers market insights and case studies to keep clients informed 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.

limaone.com/alabama-hard-money-lender

800-390-4212

LendingOne, Birmingham

Founded in 2014 by Bill Green and Matthew Neisser, LendingOne addresses investor frustrations with traditional banks and hard money lenders. They offer quick approvals to foster real estate investment growth.

Lending clientele: Residential real estate investors

Loan criteria: Loan terms vary: RentalOne Portfolio offers up to 80% LTV on Purchase/Rate & Term and up to 75% on Cash Out. Portfolio Pro allows up to 75% LTV for Purchase/Refinance, and Fix to Rent provides up to 92.5% LTC.

LendingOne holds a 4.2 Google star rating from 99 reviews and has been BBB accredited since 2017.

lendingone.com/loans/hard-money/alabama/birmingham/

866-834-2267

Should I partner with a hard money lender in Birmingham?

Hard money loans are a popular choice for real estate investors in Birmingham who need quick financing for projects such as house flipping or buying investment properties. These loans are ideal for those prioritizing speed and flexibility, even if it means higher interest rates and fees.

If you’re a homeowner in Birmingham looking to leverage your equity without incurring the high costs associated with hard money loans, HomeLight’s Buy Before You Sell program offers a compelling alternative.

This program lets you secure your new home first, giving you the financial flexibility to sell your current home at your own pace and potentially achieve a better sale price. Discover how HomeLight can help you reach your real estate goals with ease and confidence.

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