Hard money loans are becoming an increasingly vital source of capital, particularly for real estate investors and property developers.

They are short-term loans, secured by an asset. They require little personal credit for approval. A hard money lender is often someone with experience in real estate investing or development who seeks to loan money that they would otherwise use on their own investment projects.

If you need a hard money loan and aren’t sure how to go about it, the information in this article will help.

What is a hard money loan?

A hard money loan is exactly what it sounds like – a loan made based on the value of the property, rather than the credit of the borrower. In simpler terms, it’s a short-term loan that relies on collateral to ensure repayment.

It is a great financing option for a large number of small commercial properties. You will get loans with a quick turnaround time, at high interest rates, and without verifying your income

Features of Hard Money Loans

Taking out a hard money loan can seem like an appealing option for startup entrepreneurs, businesses, or real estate investors – particularly if you need capital quickly.

The interest Rate is higher

This type of lending is unique because the interest rate is higher than a conventional loan, and the process isn’t as formal as applying for a typical bank loan. However, some lenders have lower rates than others.

Also, interest rates will vary from region to region.  The interest rates for hard money loans are usually from 10 to 15%.

Uses Asset as Collateral

Hard money loans are a category of loan that uses the value of an appreciating asset owned by the borrower or real estate investments as collateral for the loan. The amount of cash that you will able to get will depend on the value of your property and many lenders give up to 65-75% of the value of the asset.

Are short Term Loans

In essence, hard money loans are short-term loans that are tied to a single, tangible asset.

Are Available through Private Lenders

These loans are available through private lenders who can approve an application in 24 hours or less.  If this type of lending fits your business or real estate needs, then you can take this type of loan.

Are Ideal for real estate investors, and developers

A hard money loan is also called a bridge loan and can be used for both commercial and residential financing. Hard money loans are often used by developers to complete the hard construction phase of large development projects, like the building of shopping centers, strip malls, and commercial buildings.

Benefits of Hard Money Loans

Are repaid on a short Duration

Hard money loans, also known as asset-based loans, are alternative financing solutions for people seeking rapid funding on a very short-term basis. The best part is that they are designed to be repaid within months, unlike other forms of alternative financing solutions that are designed to be repaid over a longer duration.

 As a result, it’s easier to qualify for these types of loans.

Are faster to get

These loans are different from traditional bank loans. They are faster to get, do not include credit records and the lender isn’t concerned with income or employment. This differs from a traditional bank loan as that one requires all of these functions and takes a lot longer to get out to you.

Property Types for Hard Money Loans

What kind of properties are good candidates for hard money loans? Hard money lenders see things a little differently than banks or other traditional borrower sources.

While banks tend to only lend on properties that they deem “acceptable”, hard money lenders may lend on almost any type of property that has good value.  

Hard money loans can be used for almost any type of real estate loan – including land, commercial property, multi-family residential, single-family residential, and industrial. However, if you’re considering getting a hard money loan, there are some properties that are better options than others.

The type of loans that fall under hard money lending vary. Occasionally, you may find a lender that specializes in one or two types of hard money loans. It’s usually best to stick with a hard money lender that specializes in a specific property type

Common Types of Hard Money Loans

Are you planning to take a hard money loan? Understanding the type of loan you are applying for is an important step towards a successful lending outcome. Furthermore, understanding the types of loans can also provide insight into how the lender runs their business and how they will work with you in the future.

Mortgage Refinancing

All homeowners are concerned about their future home financing options. What happens if interest rates go up, or lose a job and can’t make all the payments?

 A mortgage refinance is an option to avoid foreclosure or pay off your current mortgage faster. The advantage of this type of hard money loan is that it is easier to qualify for and the costs are lower than a traditional mortgage refinancing.

Other benefits of mortgage refinancing include getting a lower interest rate and monthly payment; you can cash out a portion of your equity, change rate type, and even change loan terms.

Equity Loans

These are hard money loans. Equity loans allow homeowners to borrow money against the value of their home and use it for major improvements, debt consolidation, or the purchase of a vacation or second home. The interest is generally lower than what would be charged if you used an unsecured credit card.

Although some people see taking out an equity loan as a risky proposition, this can be a great option if you need money in a hurry.

However, if you have more time and are considering a long-term loan for something other than home improvement or emergencies, such as consolidating debt, purchasing a new car, or paying for college expenses, then you may be better off going with a traditional loan at your local bank.

Need a Hard Money Loan Calculator?

We are excited to share our hard money loan calculator! Our team has been working on this for months and it is finally ready. This tool will help you figure out how much you can borrow if you’re looking for a hard money loan. It calculates the property value, down payment, equity in your home (if applicable), and more! There’s no need to find an expensive real estate agent or broker when we’ve got all of these financial tools right here for you.