Hard money and bridge loans can be an alternative to conventional financing when larger amounts are needed. Learn more about maximum loan amounts.

Hard money loans and bridge loans can provide useful sources of funds in situations where traditional financing is impractical or unavailable. One scenario in which someone might benefit from a hard money loan is when they need more funding than would be available for a conventional loan. Hard money lenders are not bound by the maximum loan amounts set by Fannie Mae and Freddie Mac. Loans in the millions of dollars, or even the low tens of millions of dollars, may be possible with a hard money loan. The amount you may borrow will depend on factors like the real property that will be involved in the transaction and your plans for that property. This article addresses the maximum amounts that may be available through hard money or bridge loans, when those kinds of loans are available, and what you might be able to do to increase the amount of money you could borrow.

What are the typical maximum loan amounts for hard money and bridge loans?

Each hard money lender has policies regarding the maximum amount of money they will loan to a borrower. The number is typically in the millions of dollars. Maximum loan amounts may range from around $4 million to more than $20 million, depending on the lender.

Capstone Capital Partners has a preferred maximum loan amount of $7 million. This is not a definitive rule, but it is the maximum the company likes to loan except in special circumstances. Capstone has made loans as large as $11 million in the past. A Capstone representative can tell you more about how to qualify for a particularly large hard money loan.

What factors may affect the maximum loan amount?

The maximum amount that a lender is willing to lend for a hard money or bridge loan typically depends on the same circumstances that lenders evaluate to decide whether to make a loan in the first place. The more money a lender puts into a loan, the more risk they take. They will loan more money for projects that they conclude are worth the risk.

Loan-to-Value Ratio

Lenders typically want to cap the loan-to-value (LTV) ratio at a certain amount. This is often to ensure that the borrower has a minimum amount of equity in the property. The lower the LTV ratio, the smaller the loan is likely to be.

Hard money lenders often allow higher LTV ratios than traditional lenders. Capstone, for example, prefers a maximum LTV ratio of 70%, but may go as high as 75% under the right circumstances.

After-Repair Value

A property after-repair value (ARV) is what it is projected to be worth once the borrower has completed their renovations or rehabilitation. In a residential fix-and-flip project, for example, an investor might buy a distressed property for a small amount, intending to repair it and sell it for a profit. The ARV is the sales price the investor should be able to get.

Hard money lenders often look at ARV projections when evaluating loan applications. This can be as important a factor as the LTV ratio.

Property Type and Location

The type of property may affect the maximum loan amount. Many hard money lenders will lend more for commercial properties than residential, but this is not universal. Some lenders may prefer to work with residential real estate investors.

Location, as the saying goes is also among the most important factors — along with location and location. Two equally distressed properties in different parts of town could have different maximum loan amounts. If a property is in an area with established demand, or one considered to be up-and-coming, lenders will see it as a safer bet than one in a depressed area. They will likely be willing to lend more money for the former property than the latter.

Business Plan

Lenders will want to know what a borrower plans to do with the loan proceeds. Hard money lenders often work with borrowers to help them improve their business plans. The faster the borrower succeeds, the sooner the lender can make more loans.

Exit Strategy

Hard money and bridge loans tend to have short terms, sometimes measured in months rather than years. They typically have a balloon payment at the end of the term. Lenders want to know that a borrower has a plan for getting the money to repay the loan.

Borrower’s Credit

While the property is the main factor hard money lenders will look at when evaluating a loan, the borrower’s financial status could be a relevant factor as well. Each lender has their own policies regarding borrowers’ creditworthiness.

Market Conditions

Factors outside of the borrower’s or lender’s control could affect the maximum amount of a loan. A wide range of market conditions could affect the amount of money available to lend or the amount of risk involved in making a loan.

Lender Policies

A lender may have other policies that limit the total amount of money they will lend. These policies could be related to factors like market conditions or borrower credit, or they could simply be an upper limit that a lender has set.

What kind of loans or properties typically receive the maximum amount?

The amount of a hard money loan is usually tied directly to the projected value of a property or project. The more valuable the property is likely to be, the more money a hard money lender might be willing to lend.

As with specific maximum amounts, the types of loans and properties that may receive the maximum loan amount will vary by lender and area. Large commercial properties, multifamily residential properties, and unusually large or valuable single-family residences might be most likely to receive large loans.

Who can get a large hard money or bridge loan?

While it is difficult to state any industry-wide rules regarding maximum loan amounts, it is generally true that lenders will not loan the maximum amount to just anyone. An inexperienced real estate investor, builder, or developer is less likely to get a large loan compared to someone who has a longstanding relationship with the lender.

An individual borrower is less likely than a corporation, partnership, or other business entity to be able to get a hard money loan in the lender’s maximum amount. This is simply because the kinds of projects that typically require that large a loan also require a business structure to manage all the details.

The most likely type of borrower to get a maximum-size hard money or bridge loan, therefore, is probably:

A business entity, such as a corporation partnership, or limited liability company;
That has a track record of success in real estate development, construction, or renovation; and
Has a good working relationship with a hard money lender.

Exceptions, as always, may apply.

How can a borrower increase the size of their loan?

Given the factors that may affect the size of a hard money or bridge loan, the following steps may help a borrower convince a lender to increase the size of the loan:

Increase the property’s valuation, such as by making renovations or improving the marketing.
Create a better business plan with a solid exit strategy.
Establish a relationship with an experienced lender through smaller loans and projects.
Understand a lender’s criteria and be prepared to negotiate loan terms.

Do interest rates vary by loan size?

The interest rate on a hard money or bridge loan is independent of the loan amount. A large loan will most likely have the same interest rate as a small loan.

Learn more about hard money and bridge loans

Ther hard money lenders Capstone Capital Partners provide fast and flexible financing to real estate investors for a variety of Texas commercial and residential projects. Our team can evaluate your project and help you get the necessary funding. Applying is easy, so contact us today to get started on a free pre-approval.

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