How to Get a Million Dollar Hard Money Loan

Borrowing a million dollars from traditional mortgage companies can be complex, but getting approved for $1,000,000 for a hard money loan can be an adventure. Securing financing for real estate investments can be a challenging and time-consuming process, especially when you’re dealing with large amounts like a million dollars. Traditional home loans often come with strict requirements, lengthy approval times, and a mountain of paperwork. But what if you need fast, flexible financing? That’s where hard money financing comes into play. Hard money lenders offer an alternative route to access substantial capital, often within days. But the question is, how do you get a million-dollar hard money loan?

Let’s consider what you need to get you through the process, from understanding what hard money loans are to how you can increase your chances of securing a significant loan amount. Now is a great time to contemplate the steps and strategies needed to navigate the world of hard money lending for large real estate deals.

What is a Million Dollar Hard Money Loan?

A million hard money loan is a type of asset-based financing where a borrower receives funds secured by real property and has loan amount of $1,000,000.

Unlike traditional home mortgages that rely heavily on the borrower’s credit score and income documentation, hard money loans are primarily based on the value of the property being used as collateral.

These private money loans are typically short-term, ranging from six months to a few years, and are often used by real estate investors who need quick access to funds for projects like fix-and-flips or property development.

Think of a hard money loan as a financial bridge that gets you from point A to point B—quickly and without the usual obstacles of traditional lending, but not without its own set of challenges.

The hard money lender tends to focus more on the loan-to-value (LTV) ratio of the property rather than the borrower’s income, credit score, or employment status.

This makes it easier for borrowers who might not qualify for conventional loans to still secure financing, provided they have valuable property to back the loan. Let’s explore 6 steps you need to take to get a million dollar hard money loan.

Step 1: Know Your Project and Property

The first step in securing a million-dollar hard money loan is understanding the scope of your project and the value of the property you’re using as collateral. Hard money lenders are primarily interested in the real estate deal itself, so having a solid, high-value property is crucial.

Would you lend someone a million dollars without knowing the details of the project? Similarly, a hard money lender need to understand the potential profitability of your investment before they can approve such a substantial loan.

To increase your chances of approval, you should:

• Have a detailed property plan: Whether it’s a residential flip, a commercial property purchase, or new construction, hard money lenders need to see a clear vision of what you’re planning to do with the property.
• Provide a comprehensive budget: Lenders want to know how much you plan to spend on repairs, renovations, or development. Make sure your budget is realistic and well thought out.
• Show the after-repair value (ARV): For fix-and-flip projects, the ARV is crucial. This is the estimated value of the property once all renovations are completed. Lenders will compare this figure to the loan amount to assess the risk.

Step 2: Find the Right Hard Money Lender

Not all hard money lenders are willing or able to lend a million dollars. Finding the right lender is critical to securing your loan. A hard money lender can be private individuals, investment groups, or companies that specialize in this type of financing. You’ll need to research lenders who regularly deal with large sums and have experience funding million-dollar real estate deals.

Finding the right hard money lender is like choosing the right tool for the job—you need to ensure that the lender specializes in projects of your scale and understands the nuances of high-stakes real estate investment.

When evaluating potential private money lenders, consider:

• Reputation and experience: Look for private lenders with a track record of financing large projects. Read reviews, ask for references, and consult with other real estate professionals who may have worked with the lender.
• Loan terms: Different 500 credit-score hard money lenders may offer different interest rates, fees, and repayment terms. For a million-dollar loan, even a small difference in interest rate can add up to significant savings or costs. Make sure to compare offers from multiple hard money loan companies.
• Specialization: Some hard money mortgage lenders focus on particular types of projects, such as residential fix and flip loans, commercial properties, or new developments. Choose a lender that understands the specific needs of your project.

Step 3: Ensure Sufficient Equity in the Property

Since hard money loans are based primarily on the property’s value, you need to have enough equity to qualify for a million-dollar loan. Most hard money lenders will lend up to 65-75% of the property’s current or after-repair value. This means you’ll need to cover the remaining 25-35% either through a down payment or existing equity in the property.

For example, if the property’s value is $1.5 million, and you’re seeking a $1 million loan, you should be able to secure financing with a loan-to-value ratio of around 67%, which is typically acceptable to the right hard money lender.

Think of equity as your safety net—it’s the cushion that assures lenders they’ll recover their investment even if the deal doesn’t go as planned.

If you don’t have sufficient equity in the property, consider partnering with other investors or providing additional collateral to secure the loan.

Step 4: Prepare for Higher Interest Rates and Shorter Terms

One of the trade-offs of hard money loans is that they come with higher interest rates and shorter terms compared to traditional loans. Interest rates for hard money loans typically range between 8% and 15%, depending on the lender, the property, and the borrower’s experience. The loan terms usually range from 6 months to 3 years.

Would you pay more for speed and flexibility? In the case of hard money loans, the higher cost is often worth it for the fast access to capital and the ability to close deals quickly.

Since hard money loans are short-term, they are best suited for projects where you expect a quick turnaround, such as property flips or development projects that can be completed and sold within the loan term.

Step 5: Have a Clear Exit Strategy

Before you secure a million-dollar hard money loan, lenders will want to see a clear exit strategy. This is essentially your plan for repaying the loan, and it’s a critical factor in the approval process. Lenders need to know how you intend to pay off the private mortgage loan, whether through the sale of the property, refinancing with a traditional lender, or other means.

Common exit strategies include:

• Selling the property after renovations or development are complete, using the proceeds to pay off the loan.
• Refinancing into a conventional mortgage once the property’s value has increased or stabilized.
• Rental income, if the property is an income-producing asset, can be used to pay down the mortgage loan or secure long-term financing.

Step 6: Be Prepared for Fees and Closing Costs

Hard money loans often come with additional fees that are higher than those associated with traditional mortgages. These can include origination fees, processing fees, appraisal fees, and closing costs. Lenders typically charge 1-3 points (1 point = 1% of the loan amount) in fees, which can add up significantly on a million-dollar loan.

For instance, if you’re borrowing $1 million and the hard money lender charges 2 points, you’ll need to pay $20,000 in fees at closing. Be sure to factor these costs into your project’s budget to avoid any surprises down the line.

Think of fees as the price of admission to the fast lane—higher closing costs come with the benefit of speed and flexibility in hard money lending.

FAQ

What is a hard money loan for real estate​?

A hard money real estate financing refers to a type of loan secured by a tangible asset, such as real estate. For savvy real estate investors or house flippers seeking quick financing, a hard money loan can be a viable option to explore. Forbes interviews a  real estate investing coach who discussed how he guides clients through the hard money lending process. Michael Ligon is an award-winning real estate coach, and co-founder of the Ligon Brothers, discusses the importance of fully understanding the details and mechanics of these loans before committing. He clearly has significant experience and understands the complexity of  hard money loans so it is worthwhile to read his article. Read more from Forbes on hard money.

Can you refinance a hard money loan​?

Yes, you can refinance a hard money loan with a conventional loan, a non QM HELOC or another private money mortgage. However, many borrowers choose to refinance with traditional lenders to obtain long-term financing with more competitive interest rates. Hard money loans are ideal for investors looking to quickly secure a real estate deal.

What’s the difference between a Hard Money Loan and Real Estate Hard Money Lending?

In the world of real estate financing, you might encounter the terms “hard money loans” and “real estate hard money loans.” Despite the different names, these terms actually refer to the same type of loan program.

Both terms are used interchangeably to describe financing that are secured by real property. Hard money loans are often utilized by real estate investors or individuals who need fast access to funds without the strict requirements associated with traditional bank loans or home mortgages.

What is the minimum credit score for hard money lending?

In most cases, there is no minimum credit score with hard money loans because they are asset based. Credit scores are not as important as equity and loan to value with bridge loans, portfolio loans and hard money mortgages.

What is the difference between soft and hard money loans​?

• Hard money refers to asset-based lending, where the property is used as collateral. Soft money loans blend elements of hard money lending with traditional lending methods.
• Soft money loans typically offer extended repayment terms, ranging from 15 to 30 years. In contrast, hard money loans have short repayment periods, usually between one month and 12 months.
• Hard money loans come with higher interest rates, while soft money financing generally offer competitive lower rates.
• Hard money financing is typically granted for specific purposes, such as real estate investments. Soft money loans are more flexible and do not require a specific use to qualify.

What is the difference between hard money​ and bridge loans?

A bridge loans are also a short-term loan commonly used to bridge a gap in financing, often for property rehabilitation or investment properties. A hard money loan, on the other hand, is a privately funded loan secured solely by the value of the real estate asset.

Is a hard money loan considered cash​?

No, banks and mortgage lenders do not consider a hard money loan is not the same as cash. Unlike cash offers, which rely on the buyer’s personal funds, a hard-money loan involves borrowing money from a lending company.

Takeaway on Getting a Million Dollar Hard Money Loan

Securing a million-dollar hard money loan is entirely possible with the right approach. It requires a solid understanding of your project, a well-researched lender, and sufficient equity in the property. While hard money loans come with higher interest rates and shorter terms than traditional financing, they offer the speed and flexibility that can be essential for large-scale real estate investments.

By following the steps outlined in this guide—knowing your project, finding the right hard money lending source, ensuring sufficient equity, preparing for higher costs, and having a clear exit strategy—you can significantly increase your chances of getting the financing you need to make your real estate venture a success.

In the world of real estate investment, hard money financing is your fast-track ticket, allowing you to bypass the conventional hurdles and seize lucrative opportunities—if you’re prepared for the journey ahead.

The RefiGuide matches you with hard money companies that you can trust because they have a proven track record.

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