In this guide, I’ll provide the typical interest rates for short-term loans secured by residential investment properties, the rates for commercial real estate bridge loans, and the average rates for DSCR rental property loans. I’ll also touch on the maximum leverage offered by most private lending companies, which are also known as hard money lenders or bridge lenders.
This article was published in August 2023. Much of the information I’ll share was gathered from talking to many of our lender clients that are listed on PrivateLenderLink.com and from attending private lending conferences in the past 8 weeks.
Interest Rates for Short-Term Private Mortgages
Let’s start off with an update on pricing for residential investment properties and small multifamily deals. The interest rates for short-term loans up to 2 years are currently ranging from 10.5% to 13% for most lenders throughout the country, with the average being 11.5%. In California, I’ve seen a few private lenders still lending in the 8%-9% range, but only for select deals with low leverage and strong borrowers.
Rates for Commercial Real Estate Bridge Loans
There is a separate sector of private lender that focuses on commercial real estate bridge loans with a minimum loan amount of $2,000,000. All of these lender love multifamily, but they also consider other asset classes such as retail, industrial, hotels, assisted living and more. From what I’m seeing, these lenders’ rates range from 9.25% to 11.5%. For deals with a lot of hair on them, or for small loan amounts, I’ve seen some lenders quoting up to 13%.
Maximum Leverage for Short-Term Loans
The maximum leverage for short-term loans hasn’t changed much in the past 9 months. Most lenders are still being conservative with a maximum loan-to-value averaging around 65%. Several private lenders in our network are maxing out at 60% LTV. Some lenders will go up to 70%. A few lenders are still advertising that they’ll go up to 75% LTV, but I’m a bit skeptical about that.
In most cases, whenever you see a lender’s maximum loan-to-value, that’s typically for a purchase loan. It’s likely to be 5 or 10 percent lower for refinance and equity cash out loans.
Maximum Leverage for Rehab Loans
With rehab loans for residential and small multifamily properties, most lenders are funding up to 80% of the purchase price and 100% of the rehab budget. Borrowers need a 20% cash down payment for the purchase in most cases.
Only one lender in our network, Old North Capital Fund, funds 90% of the purchase price for rehab projects in 20 states. They don’t require appraisals and don’t check the borrower’s credit.
Lenders That Still Offer 100% Financing for Rehab Projects
Rehab Financial Group funds 100% of the purchase and rehab (in 30+ states), but only for borrowers with decent credit and verifiable income. They maximum loan-to-after-repair value is 65% for most deals, but it could go up to 70% for real estate investors that have completed more than 3 projects.
CR Lending offers 100% financing for fix & flip projects in Texas, and their maximum loan-to-after-repair value is 70%.
For deals in Wisconsin, check out Good Faith Funding. Their maximum loan-to-after-repair value is 65%, and they only lend in Wisconsin at this time.
Interest Rates for DSCR Loans
Many private lenders offer long-term financing up to 30 years for residential rental properties, commonly known as DSCR loans. As of August 2023, the interest rates for these loans are range from 7.5% to 9%, with the average being around 8% for most deals. With DSCR loans, the rates will vary based on the debt service coverage ratio and the borrower’s credit score, which has to be above 680.
Maximum Leverage for DSCR Loans
The maximum leverage for DSCR loans hasn’t changed much. Most lenders advertise a maximum of 80% loan-to-value, but I don’t think that’s going to be offered to the majority of real estate investors. It seems like 75% is really the maximum at this time, so borrowers need a 25% cash down payment.
And of course the down payment could be higher depending on the debt service coverage ratio. For an equity cash out loan, the maximum is typically 70%, and some lenders can go up to 75% LTV.
Some private lenders offer DSCR loans for multifamily properties up to 10 units. The max leverage for multifamily properties is typically 5 percent lower than for residential investment properties with 1 to 4 units. The maximum for most lenders at this time is 70% LTV, so investors will need a 30% cash down payment for a purchase.
How to Find Direct Private Lenders
If you’re seeking private financing for an investment real estate deal, use our website as a resource. There are two options for using our platform.
Option 1: Browse Lenders
Search on our site for direct lenders. All lenders have a very detailed profile with information about their lending guidelines, rates, fees and much more. Make contact with each out directly by email, phone call, or visit their websites. First select a loan type, then enter the state where the property is located.
Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.