Hard Money Lenders Colorado: A Comprehensive Overview

Published on July 25th, 2024
13 min read

Joseph Gordon Editor
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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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If you’re a real estate investor in Colorado, you know that securing quick funding can make or break your next project. This is where hard money loans come into play. These loans offer a fast, flexible financing option, allowing you to seize opportunities in Colorado’s competitive market. Whether you’re looking to flip a property in Denver’s booming neighborhoods or purchase a commercial space in Colorado Springs, hard money loans might be the solution you need.

In this guide, we’ll explore everything you need to know about hard money lenders in Colorado.

We will explain what a hard money lender is, showing you how these loans work and what they’re typically used for. By the end, you’ll have a clear picture of whether partnering with a hard money lender is the right move for your next real estate venture.

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 is a private individual or company that provides short-term loans secured by real estate. Unlike traditional banks, which focus on the borrower’s credit score and financial history, hard money lenders in Colorado assess the property’s value as collateral.

These lenders often work with real estate investors like house flippers and buyers of rental properties. They use the after-repair value (ARV)—the projected value of a property after renovations—to determine loan amounts. Typically, they lend a percentage of this ARV to ensure the investment remains secure and profitable.

Interest rates for hard money loans are higher, ranging from 8% to 15%, and the loans are usually short-term, spanning 6 to 24 months. Borrowers also face costs like origination fees, closing costs, and points, which are upfront payments based on the loan amount. If the borrower defaults, the lender can take possession of the property to recover the funds.

How does a hard money loan work?

Here’s a detailed breakdown of the key aspects and benefits of hard money loans in Colorado to help give you a better idea of how they work:

Short-term loan: Hard money loans are typically short-term, with repayment periods ranging from 6 to 24 months, unlike traditional 30-year mortgages.
Faster funding option: These loans offer a faster funding process, often closing within a week, compared to the traditional 30 to 50 days it takes to secure a conventional mortgage.
Less focus on creditworthiness: Hard money lenders place less emphasis on your credit score, making it easier for those with poor credit to qualify.
More focus on property value: Lenders prioritize the loan-to-value ratio (LTV) of the property, especially its potential value after repairs (ARV).
Not traditional lenders: Hard money lenders are private individuals or companies, not traditional banks, providing more flexibility and quicker decision-making processes.
Loan denial option: If the property or project seems too risky, hard money lenders can deny the loan, ensuring they maintain a profitable portfolio.
Higher interest rates: These loans come with higher interest rates, typically between 8% and 15%, reflecting the increased risk the lender takes.
Might require larger down payments: Borrowers may need to provide a substantial down payment, often between 20% and 30% of the property’s value.
More flexibility: Hard money lenders can offer flexible terms tailored to the borrower’s needs, unlike the rigid guidelines of traditional loans.
Potential for interest-only payments: Some hard money loans offer interest-only payments during the loan term, which can lower monthly payments and improve the borrower’s cash flow.

Choosing to buy a new house before selling the current one

What’s the Best Way to Buy a House Before You Sell Yours? Learn more

A home which can be purchased with a home loan

Will Your 2024 Credit Score Get You The Home Loan You Need? Learn more

What are hard money loans used for?

Hard money loans can be a versatile financing solution for various real estate investment scenarios. Here are some common situations where these loans prove beneficial:

Flipping a house: For investors involved in flipping homes, hard money loans provide quick access to funds needed to purchase and renovate properties. This fast funding allows flippers to take advantage of time-sensitive deals and complete their projects efficiently.
Buying an investment rental property: Investors looking to acquire rental properties can use hard money loans to secure financing quickly. This allows them to purchase and renovate properties, getting them rental-ready and generating income faster than traditional financing options would allow.
Purchasing commercial real estate: Hard money loans can be beneficial when purchasing commercial properties due to their flexibility and speed. Investors can secure financing quickly, allowing them to capitalize on lucrative commercial real estate opportunities and generate revenue sooner.
Borrowers who can’t qualify for traditional loans: Individuals who cannot meet traditional loan criteria due to poor credit or lack of income documentation can still obtain financing through hard money loans. These loans focus on the home equity and value of the property, making them accessible to a wider range of borrowers.
Homeowners facing foreclosure: Hard money loans can be a lifeline for homeowners facing foreclosure. By providing quick financing, these loans allow homeowners to pay off their existing mortgage, avoid foreclosure, and potentially sell their property under less distressing conditions.

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 also help estimate these costs.

Alternatives to working with hard money lenders

If a hard money loan isn’t the right fit for your needs, consider these alternative financing options:

Take out a second mortgage: A home equity loan allows you to borrow against the equity in your home, providing a lump sum that can be used for various purposes, including real estate investments.

Cash-out refinance: With a cash-out refinance, you can replace your existing mortgage with a new one for a higher amount, taking the difference in cash to fund other projects or investments.

Borrow from family or friends: If you have supportive family or friends, borrowing money from them can be a flexible and less formal financing option, though it’s important to maintain clear terms to avoid misunderstandings.

Use a government-backed loan program: Programs like FHA loans offer more accessible financing options for those who qualify, providing lower down payments and flexible credit requirements.

Peer-to-peer loan: Peer-to-peer lending platforms connect borrowers with individual investors willing to fund their loans, often offering competitive rates and terms based on the borrower’s profile.

Specialized loan programs: There are various specialized loan programs available for specific types of real estate investments, such as loans for first-time homebuyers, veterans, or rural properties, each with unique benefits and requirements.

Request a seller financing option: In some cases, the seller may be willing to finance the sale themselves, allowing you to make payments directly to them instead of through a traditional mortgage lender, which can be advantageous in competitive markets.

How to buy before you sell

HomeLight’s Buy Before You Sell program is designed to help homeowners seamlessly transition from one home to the next. This program allows you to buy a new home before selling your current one, eliminating the stress and uncertainty of coordinating two major transactions simultaneously.

With Buy Before You Sell, HomeLight provides the funds needed to purchase your new home upfront. Once you’ve moved in, HomeLight helps you sell your old home for top dollar, ensuring you get the best possible price.

This program is particularly beneficial for those who want to avoid temporary housing or storage costs and those who don’t want to rush the selling process of their current home.

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. 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%.

2 top hard money lenders in Colorado

Traditional lenders might not be the solution for every real estate investment. If you’re looking to move quickly and capitalize on an opportunity, explore the hard money lending options available in Colorado.

Colorado Hard Money

Colorado Hard Money is a private money lender in both commercial and residential sectors. Operating for over 25 years, the company leverages the collective expertise of partners who have amassed over 100 years of commercial real estate lending since 1975.

Lending clientele: Real estate investors

Loan criteria: 60% maximum LTV

Colorado Hard Money has a 5 star rating. One review said, “This lending business should be described as a counseling service. Great honest advice even if they have nothing to gain.”

coloradohardmoney.com

303-963-9251

Hard Money Mike

Hard Money Mike is a personalized lending service tailored to real estate investors. The company prides itself on offering a human touch, ensuring that clients always communicate directly with a live person.

Lending clientele: Real estate investors, fix and flips

Loan criteria: Up to 100% of purchase and 100% of rehab

Hard Money Mike has a 4.8-star Google rating based on 39 reviews. Past clients praise them for their service and expertise, and several clients commend the loan process as painless and smooth.

hardmoneymike.com

303-539-3000

Should I partner with a hard money lender in Colorado?

Deciding whether a hard money loan is right for you depends on your specific financial needs and real estate goals. Hard money loans are best suited for real estate investors who need quick access to capital and flexible terms to seize opportunities in the competitive Colorado market.

These loans are ideal for house flippers, rental property investors, and those purchasing commercial real estate, as they prioritize property value over borrower creditworthiness.

However, if you’re a homeowner looking to leverage your equity without the higher interest rates and shorter terms of a hard money loan, consider HomeLight’s Buy Before You Sell program. This innovative solution allows you to buy a new home before selling your current one, providing a smoother transition and eliminating the stress of juggling two transactions simultaneously.

Ultimately, the right choice depends on your needs. Hard money loans can be a powerful tool for real estate investors in Colorado. For homeowners, HomeLight’s Buy Before You Sell offers a compelling alternative that leverages your equity.

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