What exactly is a hard money loan?

Hannah PattenUncategorized

In our previous blog posts we have discussed what a hard money loan is, the terms, and some pros and cons. Today we are going to dive deep into exactly what a Hard Money Loan is, the differences between a hard money loan and a bridge loan, and what it can do for you. 

A hard money loan in short is a high-risk, high-yield financing option in which an investor secures the funds from a lender with real property. Typically you will only find hard money lenders in the U.S. and Canada. 

Similar to bridge loans, hard money loans are short term and come with hefty interest rates. There are big differences between the two types of loans. To start bridge loans tend to fund commercial property projects until permanent funding becomes available where hard money loans serve as notes of last resorts for financing projects. The key competitive advantage hard money lenders have over traditional banks is that they will underwrite a loan for a borrower that would otherwise have no financing options. 

With hard money loans, interest rates could be as high as 18% but, even with fast approvals and less paperwork, it has kept borrowers coming back to hard money lenders. This is connivance that is only offered by hard money lenders is also further justification for the higher interest rates.