What is Hard Money Lending?

Hard money lending is a type of lending that is based on the value of a physical asset, such as real estate, rather than the creditworthiness of the borrower. This type of lending is often used as a short-term financing solution, as the loan terms are usually for one year or less.

One of the main differences between hard money lending and traditional lending is that hard money lenders do not rely on credit scores or income documentation to make lending decisions. Instead, they focus on the value of the asset being used as collateral. This means that even borrowers with poor credit or limited income may be able to secure a hard money loan.

Hard money loans are typically more expensive than traditional loans, as the lender is taking on more risk. Interest rates can be as high as 15-20%, and there may be additional fees, such as points and origination fees. However, the quick turnaround time and flexible underwriting standards make hard money loans a good option for borrowers who need to secure funding fast.

One of the main advantages of hard money lending is that it allows borrowers to get financing for investments that may not qualify for traditional loans. This could include fix-and-flip projects, where the borrower is planning to renovate and sell a property, or short-term rental properties.

There are also some disadvantages to consider when it comes to hard money lending. The high interest rates and fees can make it more expensive in the long run, and the short loan terms can be challenging for borrowers who need longer-term financing. It's important to carefully consider the costs and benefits of a hard money loan before deciding if it's the right option for you.

Overall, hard money lending can be a useful tool for borrowers who need to secure financing quickly and don't qualify for traditional loans. However, it's important to understand the terms and costs of a hard money loan before committing to one.