What is a Hard Money Loan?

What is Hard Money?

hard money loan is an asset based loan secured by real estate, and usually used for properties that don’t qualify for traditional financing. Interest rates are higher than conventional real estate loans because of the higher risk and short duration. Most hard money loans are used for rehab projects lasting 6 to 9 months

Typically, loan would be up to 65% or 70% of the After Repaired Value of the property.  For example, If the property is worth $100,000, a lender would lend $65,000 – $70,000 against it.

The lender will also want to see the borrower putting their own funds into the project. 20% of the purchase price and estimated renovations is common.

The asset is the primary qualifying criteria for a hard money loan. Credit scores, income and other criteria can also be factors.  Experience with similar projects, and cash reserves are frequently considered before approving a loan.

In commercial properties a bridge loan is similar to a hard money loan.

A Hard Money Loan has two distinct advantages over a traditonal mortgage.

  • The loan amount is based on the improved value of the property.
  • To a large degree, the condition of the property doesn’t matter.

The real estate investor is able to get funds to purchase and renovate the property. The community gets an improved property. Someone will get to live in a greatly improved home.

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