{"id":40529,"date":"2023-03-02T23:47:00","date_gmt":"2023-03-03T07:47:00","guid":{"rendered":"https:\/\/financer.com\/?post_type=wiki&p=40529"},"modified":"2024-12-16T03:14:52","modified_gmt":"2024-12-16T11:14:52","slug":"hard-money-loan","status":"publish","type":"wiki","link":"https:\/\/financer.com\/loans\/articles\/hard-money-loan\/","title":{"rendered":"What Is a Hard Money Loan?"},"content":{"rendered":"\n

A hard money loan is a type of loan that is typically used for real estate investments<\/a>. It is a loan that is backed by a physical asset such as property, rather than by the creditworthiness of the borrower. <\/p>\n\n\n\n

In this guide, we take a closer look at how these loans work, who can benefit from them, how the application process works, the risks involved, and how to find a reputable hard money lender.<\/p>\n\n\n\n

Read more: What Can Be Used As Collateral for a Secured Loan?<\/a><\/strong><\/p>\n\n\n\n

How Does a Hard Money Loan Work? <\/h2>\n\n\n\n

Hard money loans are short-term loans that are typically used for real estate investments. <\/p>\n\n\n\n

They are secured by the property being purchased<\/strong> and the lender is primarily concerned with the property’s value and its potential to generate income. <\/p>\n\n\n

<\/div>

Hard money loans are different from traditional loans in that they are typically funded by private investors or groups, rather than banks or other financial institutions.<\/p><\/div>\n\n\n

Hard money loans also have higher interest rates and shorter repayment terms than traditional loans.<\/p>\n\n\n\n

What Are Hard Money Loans Used For?<\/h2>\n\n\n\n

Here are some of the reasons why people take out hard money loans:<\/p>\n\n\n\n

Buying Commercial Property<\/h3>\n\n\n\n

Similarly to this, a business owner who is unable to obtain standard financing may use a hard money loan to finance the purchase of commercial real estate. <\/p>\n\n\n\n

For business owners buying a special property that doesn’t qualify for conventional financing, hard money loans can be helpful. <\/p>\n\n\n\n

The same may be true for those who find traditional commercial loan limits insufficient for their needs.<\/p>\n\n\n\n

Flipping a House<\/h3>\n\n\n\n

Real estate investors who make money by purchasing low-cost properties in need of fixing up, making value-boosting repairs and renovations, and then flipping the homes for profit may utilize hard money loans.<\/p>\n\n\n\n

Because these projects typically happen fairly quickly, professional flippers often prefer faster forms of financing. <\/p>\n\n\n\n

Also, because house flippers normally try to sell the home within a short amount of time \u2013 typically less than a year \u2013 they don\u2019t need a lengthy loan term you\u2019d get with a standard mortgage.<\/p>\n\n\n\n

Buying an Investment Property<\/h3>\n\n\n\n

Those who want to invest in rental property but don\u2019t qualify for traditional financing might seek out a hard money loan to pay for their investment.<\/p>\n\n\n\n

If your credit history prevents you from being approved for a traditional loan<\/a> or if you require a larger loan amount than a traditional lender will allow, this method may be helpful.<\/p>\n\n\n\n\t\t

Compare loans from 48 lenders<\/h3>

Find the cheapest rate with one click<\/p>

\n <\/span>\n <\/div>\n
\n \n <\/div>\n<\/div>
Compare Offers<\/a><\/div>\t\t<\/div>

Who Can Benefit From a Hard Money Loan? <\/h2>\n\n\n\n

Real estate investors typically use hard money loans. This is because these loans are a great way to access capital for real estate deals<\/a> quickly, and they are often easier to obtain than traditional loans. <\/p>\n\n\n\n

House flippers can also benefit from hard money loans. Flippers buy properties, fix them up, and then sell them for a profit. Hard money loans can provide the capital needed to purchase the property and make the necessary repairs. <\/p>\n\n\n\n

People with poor credit<\/a> can also benefit from hard money loans because the loan is secured by the property, rather than the borrower’s creditworthiness. <\/p>\n\n\n\n

Finally, business owners can use hard money loans to finance their operations or purchase equipment.<\/p>\n\n\n\n

Read more: Compare S<\/a>m<\/a>a<\/a>l<\/a>l<\/a> <\/a>B<\/a>usiness Loan Rates<\/a><\/strong><\/p>\n\n\n\n

The Application Process <\/h2>\n\n\n\n

The application process for a hard money loan is typically less strict than that of a traditional loan. However, lenders will still require certain documents, such as a purchase contract, proof of income, and a credit report. <\/p>\n\n\n\n

The lender will also evaluate the property being purchased to ensure it has enough value to secure the loan. <\/p>\n\n\n\n

The criteria for approval will vary depending on the lender. <\/p>\n\n\n\n

Still, generally, the lender will look at the property’s value<\/strong>, the borrower’s experience<\/strong>, and the borrower’s ability to repay the loan<\/strong>. <\/p>\n\n\n\n

The typical time frame for approval is usually a few days to a week.<\/p>\n\n\n\n

The Risks of Hard Money Loans <\/h2>\n\n\n\n

While hard money loans can be a great way to access capital for real estate deals quickly, they do come with risks. <\/p>\n\n\n

<\/div>

The interest rates for hard money loans are typically higher than traditional loans, and the repayment terms are shorter. This means that borrowers may have a harder time repaying the loan, which could lead to foreclosure.<\/p><\/div>\n\n\n

Additionally, hard money loans are not regulated like traditional loans, which means borrowers are more susceptible to fraud and other unethical practices.<\/p>\n\n\n\n

\n\t\t\t\t

How to save $1,190.00 <\/span> on your loan<\/h3>\n\t\t\t\t

The price difference for a $500.00 loan in 90 days is $1,190.00.<\/p>\n\t\t\t\t

Find out how<\/a><\/p>\n <\/div>

How To Get a Hard Money Loan<\/h2>\n\n\n\n

To get a hard money loan, you need to compare lenders<\/a> and loan offers to find a loan for your specific needs. <\/p>\n\n\n\n

The lender may do a quick credit check but the process is generally faster than a traditional loan. Keep in mind that interest rates on these loans could be higher than with traditional loans as the lender takes on significant risk. <\/p>\n\n\n\n

How To Find a Hard Money Lender <\/h2>\n\n\n\n

Finding the right lender is important – here are a few guidelines:<\/p>\n\n\n\n