What is a Hard Money Loan
You may have heard of hard money loans. These types of loans can be a useful tool for those who need to access capital quickly or have difficulty obtaining financing from traditional lenders.
What is a Hard Money Loan?
Same as a traditional mortgage, a hard money loan is a secured loan. It’s secured by the value of the property being purchased or used as collateral, rather than the borrower's creditworthiness or financial history. The “hard” part of “hard money” refers to the tangible “hard” asset being used to back the value of the loan. It is generally provided by private investors or companies, rather than traditional financial institutions like banks or credit unions.
How Does a Hard Money Loan Work?
Hard money loans typically have higher interest rates and simpler underwriting than traditional loans. Borrowers are allowed to make smaller monthly interest-only payments during the repayment period, with a balloon payment due at the end of the loan term.
Benefits of Using a Hard Money Loan
One of the primary benefits of using a hard money loan is that it can provide quick access to capital. This can be especially useful when time is of the essence. Also borrowers who cannot get conventional financing due to things like poor credit, recent bankruptcy, a recent foreclosure etc. can still obtain a hard money loan if they have sufficient equity in the property. In addition since the loan amount is based on the value of the property rather than the borrowers income or credit, the borrower can often access more capital than they would be able to through a traditional loan.
Hard money loans can be a useful tool for borrowers who have been rejected by the banks or for scenarios where a borrower needs access to capital quickly.