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Hard Money Definition

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Hard Money Program

Hard Money Loans are an alternative form of lending for investors who don’t fit traditional lending criteria. We offer Hard Money programs at some of the industry’s lowest rates to individuals, corporate entities, and foreign nationals. Because these loans can be executed so quickly, they can be used to bail out a borrower who has attempted to go a traditional route and are in danger of losing their purchase contract.

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The concept of “hard money” has been in the real estate investment world from the very beginning yet for those who have yet to apply for a hard money loan the term itself needs a bit more explanation. So, what is hard money loan? There really is no strict hard money definition but in let me try to define hard money, it’s an asset-based loan issued by a private money lenders. In real estate, the asset is real property. These types of loans will typically carry higher interest rates and fees compared to other types of investment property loans and they’re of shorter term in nature. The loan terms can range from six months to three years and provide the investor with enough capital to not only acquire the property but to rehabilitate the asset to the point where a buyer can obtain traditional financing from a mortgage company and paying off the hard money loan.

For experienced real estate investors hard money not only a needed tool but a critical part of their investment strategies. Without hard money lending real estate values overall can suffer when there are homes that are in such poor condition a traditional bank won’t place a loan on the property due to its current state. Such properties bring down the value of other properties in the neighborhood. Hard money lenders specialize in financing these projects and turning a once-dilapidated property into a home that conforms with others in the area.

Hard Money Definition

Yet because hard money is found at private investors who can establish their own internal guidelines, sometimes the hard money definition can change slightly from one investor to the next yet most lenders issue these loans under the same basic guidelines. The following is a brief hard money definition:

  • The subject property must conform to the area once the project has been completed and supported by recent comparable sales in the area.
  • Considered “bridge” loans and are short term in nature, usually only long enough to acquire, repair and market the home for sale.
  • Used for investment properties only and are not used to buy and repair a home to be used as a primary residence. Second homes or vacation homes are considered on a case-by-case basis.
  • The borrower must be able to document a solid “exit” strategy which details how the loan will be paid back and when.
  • Secured in a first lien position on the subject property.
  • Rely more on the value of the asset compared to a traditional mortgage.
  • Can close in as little as ten days.

It’s important to note here that hard money doesn’t also mean careless money. While underwriters base a lending decision primarily on the property and less so of the borrower the lender does expect to be paid back. Hard money lenders want their interest payments and fees, not the property being financed. Credit is less of a factor but still considered as part of the overall approval process. However, lenders do look at verity of compensating factors when making decision on the file. Some of the factors might be investor experience or prior relationship with the lender.

If you’d like more information on what is hard money lending and why seasoned real estate investors use hard money as part of their overall business plan then it’s time to pick up the phone and give us a call. If you’ve got a particular project in mind and want to see how hard money can work for you, run the scenario by one of our experienced loan officers and let’s see how we can work together.