- September 2, 2020
- Posted by: admin
- Category: investment
A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of “last resort” or short-term bridge loans. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies and not banks.
Hard money loans have terms that are based mainly on the value of the property being used as collateral, not on the creditworthiness of the borrower. Since traditional lenders, such as banks, do not make hard money loans; hard money lenders are often private individuals or companies that see value in this type of potentially risky venture.
The cost of a hard money loan to the borrower is typically higher compared to financing available through banks or government lending programs, reflecting the higher risk that the lender is taking by offering the financing. However, the increased expense is a tradeoff for faster access to capital, a less stringent approval process, and potential flexibility in the repayment schedule.
Hard money loans may be used in turnaround situations, in short-term financing and by borrowers with poor credit but substantial equity in their property. Since it can be issued quickly, a hard money loan can be used to stave off foreclosure.