A hard money loan is a type of short-term loan secured by real estate and typically issued by private investors or companies, not traditional banks. These loans are primarily based on the value of the property being used as collateral rather than the borrower’s creditworthiness.
Key Characteristics:
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Collateral-based: Approval is based on the value of the property, not the borrower’s income or credit score.
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Higher interest rates: Typically range from 8% to 15%, much higher than conventional loans.
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Short term: Usually 6 months to 3 years.
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Fast approval: Can be funded in days, not weeks.
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Used for:
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Real estate investment (e.g., fix-and-flip projects)
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Bridge financing
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Buying property at auctions
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When traditional financing isn’t an option
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Pros:
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Quick access to funds
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Less stringent qualification requirements
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Useful for time-sensitive deals
Cons:
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High cost
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Short repayment period
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Risk of losing the property if you default