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Hard Money Loan

Definition

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans, starting at 7.7%, because of the higher risk and shorter duration of the loan.

What is 'Hard Money Loan'

A loan of "last resort" or a short-term bridge loan. Hard money loans are backed by the value of the property, not by the credit worthiness of the borrower. Since the property itself is used as the only protection against default by the borrower, hard money loans have lower loan-to-value (LTV) ratios than traditional loans.

Explaining 'Hard Money Loan'

Hard money loans carry interest rates even higher than traditional subprime loans. Since traditional lenders, such as banks, do not make hard money loans, hard loan lenders are sometimes private individuals that see value in this type of potentially risky venture. Hard money loans are used in turnaround situations, short-term financing, and by borrowers with poor credit but substantial equity in their property that wish to stave off foreclosure.

Hard Money Loan FAQ

Are Hard Money Loans a Good Idea?

Hard money loans are good for wealthy investors who need to get a quick funding for an investment property, without any of the red tape that goes along with bank financing. When evaluating hard money lenders, closely check the fees, interest rates, and loan terms.

How much do you have to put down on a hard money loan?

Banks prefer you to put down 20 percent of the purchase price, which mostly gives you better terms on the loan. Putting down less would often make you purchase mortgage insurance, which will increase your monthly mortgage payment.

Why is it called hard money lending?

It's called a “hard money” loan because it's harder to acquire and pay back than its soft money counterpart. Hard money lenders decide on lending you money based on the property for which the funds will be used instead of looking at your credit score.

What are hard money loans?

A hard money loan is secured by real property. Hard money loans are considered loans of "last resort" or short-term bridge loans. These loans are mainly used in real estate transactions, with the lender generally being individuals or companies and not banks.

What is the interest rate on hard money?

Interest rates range from 10 – 15% depending on the specific lender and the perceived risk of the loan. Points can range anywhere from 2 – 4% of the total amount loaned. The interest rates and points may vary greatly depending on the loan to value ratio.

How do I find a good hard money lender?

You can find hard money lenders by: Googling "hard money lender" with your city or state name (Example "Hard money lenders in Tampa, FL). Attending your local real estate investment association (REIA). Checking websites specific to investing or general business websites, like LinkedIn.

Further Reading


Hard currency and sound credit: A financial agenda for Central Europe
www.econstor.eu [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …

Micro-finance evangelism,'destitute women', and the hard selling of a new anti-poverty formulaMicro-finance evangelism,'destitute women', and the hard selling of a new anti-poverty formula
www.tandfonline.com [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …

Grants versus loans for development banksGrants versus loans for development banks
pubs.aeaweb.org [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …

Soft budget constraints and credit crunches in financial transitionSoft budget constraints and credit crunches in financial transition
www.sciencedirect.com [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …

Historical perspectives on financial development and economic growthHistorical perspectives on financial development and economic growth
www.nber.org [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …

Information: Hard and softInformation: Hard and soft
academic.oup.com [PDF]
… Moreover, the integration benefits of a hard money regime–in terms of economic horizons and reduced risk … exposure of financial institutions, both in their own funding and that of loan customers, must … collect a fee (or partnership) but also inspect the books; their own money is at …



Q&A About Hard Money Loan


How are hard money loans secured?

Hard money loans are secured by the value of the property, not by the credit worthiness of the borrower.

What is a hard money loan?

A hard money loan is a loan of last resort or short-term bridge loan.

What does LTV mean in terms of a hard money loan?

The LTV means that there is less protection against default by the borrower because they have little equity in their home.

What does LTV stand for?

Loan to Value ratio.