What is a Hard Money Loan? Pros & Cons

Hard money loans are a form of loan that gives the opportunity to those in need but who aren’t accepted by banks that are traditional to obtain the funds they require. It’s referred to as loans of “last last resort” or bridge loans for short duration and is typically used in real estate transactions , with the lenders being typically corporations or individuals, not banks and financial institutions.

Simple Examples

  • These loans can be the best alternative for people who don’t have a much time to sit on bank approval , but need immediate cash.
  • Hard money is a fast method of borrowing money and paying back, but is accompanied by higher rate of interest.
  • One of the most attractive advantages of hard money loans in comparison to conventional bank financing, is the fact that they’re quick and simple.
  • It is a type of loan in which the loanee and the borrower are able to agree on the terms. Most often, these kinds of loans use property as collateral to repay.
  • A default by the borrower could be profitable for the lender by gaining collateral.

How does a hard Money loan work?

These are risky investments for both private and corporate clients who might see potential in your property. Hard Money lenders do not rely on credit scores. They instead make their decisions based on the amount of worth a property can provide, not on what kind or person you’re or whether you have had any prior experience with other lenders.

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It’s a kind of loan that is accessible to everyone. Flippers of properties in the hope of making profits by renovating and reselling the property. This usually happens within a year, or earlier if it happens in any way.

The costs of these loans are compensated for by the fact that they are typically planning to repay the loan fast – the majority of hard money loans can only last for 1-3 years at the maximum length. This gives the borrower to enjoy additional benefits when compared to more conventional types of mortgages such as the FHA as well as a VA mortgage.

There are less down payment requirements, no credit score requirements; and shorter repayment times (the balance with the highest amount must be kept less than 80.

Note: Hard money lending can be viewed as an investment. Many have employed this model of business to generate enough income to support themselves and practice it.

Special Tips to the Hard Money Loans

Hard money loans are a type of finance that provides the ability to access capital quickly, but however it comes at the cost of higher cost. They are generally more risky for lenders since they might not be in a position to foreclose on homes after borrowers cease to pay their mortgages. However, this can give some flexibility in repayment times and approvals.

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Hard money loans could be a viable option for those with no other alternatives. With this type of loan customers can get the money they require quickly to maintain their home and secure jobs before it’s too late.

Pros and Pros and loan


Private investors take decisions swiftly since they don’t need to undergo the same procedure that banks do. They’re focussed on collateral and not on the applicant’s financial standing, which can speed their decision-making processes.

With the aid of an institution, it’s possible to obtain funds fast without any hassle. They’ll typically spend less time analyzing the loan application and verifying your income in the event that you’ve had business with them previously.

It is common for investors to take risks with loans, however they have a lot of concerns. They aren’t concerned about getting the money back, as there’s certainly more worth selling the property itself should the borrower fail to pay.


These loans can be an excellent option for investors who wish to purchase houses and invest in investments. These loans typically come with smaller LTV ratios than conventional mortgages, which means they offer greater protection against default.

This is especially useful in the case of distressed properties that require repair or renovation prior to being put up for sale again.

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It is more expensive to obtain an unsecured loan than the average subprime credit. The interest rates are different however, on average in the year 2020, they averaged 11.25 percent.

If you’re in the market for an unsecure loan you should be sure that the lender has the authority to be able to approve the owner-occupied home due to regulations and guidelines for compliance.

Hard Money Lenders

The lending market for hard money is a small, exclusive industry. It is not possible to find these loans at the local bank However, you can obtain these loans from private investors or from specialized firms that specialize in this kind of loan only.

Hard money lenders enjoy an increased sense of independence than traditional non-conforming loan providers. This means they can set their own rules regarding the credit scores they require or the ratios of debt-to-income they require the borrowers to meet to be eligible for loans.

If you’re searching for an institution that lends hard money do not be dismayed if other traditional lenders have rejected you. It’s about the property, and not so much about your credit score since they lend on the appraised value of property instead of scores from FICO or other agencies.

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