A hard money loan is a short-term loan primarily used in real estate transactions. It is secured by real property and is typically funded by private investors or companies. Unlike traditional bank loans, hard money loans rely more on the property’s value than on the borrower’s creditworthiness.
Hard money loans differ in several key ways:
- They usually have shorter terms than traditional loans.
- Approval and funding times are often faster.
- Interest rates may be higher due to the increased risk the lender assumes.
Interest rates for hard money loans vary based on the lender, the risk involved, the loan term, and the property’s value. Generally, rates are higher than traditional bank loans due to the higher risk and shorter term of the loan.
Most property types, including residential, commercial, land, and industrial properties, can qualify for a hard money loan. The critical factor is the property’s value and the borrower’s plan.
One of the advantages of hard money loans is their speed. Borrowers can often receive funding within a few days to a week, depending on the lender’s requirements and the speed of the property evaluation.
Hard money loans are generally short-term, often ranging from 1 to 5 years. They are designed to be a temporary financing solution until the borrower can secure longer-term financing or fulfill the purpose of the loan (like selling the property).
To apply for a hard money loan, contact a lender, complete an application, and provide the necessary documentation about the property and your financial situation. The lender will then assess the property’s value and your plan.
While credit scores may be considered, they are typically less critical for hard money loans than traditional ones. The primary focus is on the value of the property securing the loan.
Some hard money lenders provide loans for owner-occupied properties. Still, they are more commonly used for investment properties due to regulatory reasons and the short-term nature of these loans.