Hard Money Loan

Hard Money Loan Definition

Hard Money Loan (noun): a loan made based primarily upon the collateral’s equity rather than the creditworthiness of the borrower like in the majority of traditional financing situations. Due to higher risks involved in such type of financing, hard money loans usually have higher interest rates and fees than traditional financing options. Unlike conventional mortgage loans, hard money loans are short term mortgage loans designed primarily for real estate investors to acquire distressed or under valued properties for non-owner occupied purposes.

Advantages of Hard Money Loans Over Traditional Financing

#1 Easier to Obtain

In hard money loan situation, the lender is more concerned with the collateral that with the borrower. Therefore, hard money loans are typically easier to obtain, especially those with marginal credit.

#2 Rehab Costs Are Included

Extremely beneficial aspect of hard money loans is the ability to borrow additional funds for the rehab of the property besides the initial borrowed amount of the property’s purchase price.

#3 No Pre-payment Penalty

Most traditional loans are packaged with pre-payment penalties. A borrower will be charged with a early pre-payment fee if the loan is paid off earlier than specified time-frame. Unlike, conventional mortgage loans, hard money loans don’t include pre-payment penalties.