A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years. The loan requires monthly payments of only interest or interest and some principal with a balloon payment at the end of the term.
Benefits & Features
Fund loan quickly, usually within 7 days
Funded by private investors
Higher interest rates than conventional loans
Loan amount is determined by LTV ratio (loan to property value)
Who should use a Hard Money Loan?
Real estate investors choose to use hard money for many different reasons. The main reason is the ability of the hard money lender to fund the loan quickly. In most situations, hard money loans can be funded within a week. Compare that to the 30 – 45 days it takes to get a bank loan funded. The application process for a hard money loan generally takes a day or two and in some cases, a loan can be approved the same day.
Hard money loans are ideal for situations such as:
- Fix and Flips
- Land Loans
- Construction Loans
- When the Buyer has credit issues.
- When a real estate investor needs to act quickly.