What is a “Hard Money Loan”

[Don Konipol]

What is a “Hard” Money Loan?

There is apparently, a lot of misunderstanding as to what is meant by “hard money”. Amongst the common misconceptions I see by posters on BP are that hard money loans are junior mortgages to fill the gap between institutional financing and down payment; that it is in lieu of down payment so the borrower can acquire a property with “no money down”, and that it is money borrowed to use for an earnest money deposit. So to clarify the how, why and what of hard money loans, I have outlined a very simplified explanation of where we as a hard money (commercial real estate ) lender come in

1. Owner of real property needs a loan, but does not qualify under institutional financing criteria

2. Loan is brought to us to consider funding and we determine that risk/return parameters are acceptable

3. We make loan at a total cost to borrower of about double what “A or B” risk borrowers would pay for  bank financing

Loans are 1st liens, short term (12 - 24 months) at no higher than 65% loan to value.

Hope this adds clarity