What Is a Hard Money Loan?

A hard money loan is a short-term loan backed by the equity of a physical property. The term “hard money” refers to hard assets securing it instead of a credit score or income.

Hard money loans are short-term funding for purposes, such as bridge loans, flipping homes, and construction projects. They offer borrowers access to quick capital with less paperwork and fewer requirements than traditional bank loans.

This blog will discuss the basics of hard money loans, how they work, and what makes them different from other types of loans.

How Does a Hard Money Loan Work?

A hard money loan works similarly to a traditional loan. The borrower applies for financing, provides property or collateral to secure the loan, and then pays the loan back with interest over a predetermined period.

Generally speaking, these loans have higher interest rates and origination fees than conventional loans due to their high-risk nature. They also usually require more collateral from the borrower to secure the loan.

In most cases, this collateral will be the value of the property itself or any other assets owned by the borrower that can be used as collateral for repayment of the loan if necessary.

For example, a borrower looking to purchase a house will often put down the value of their home as collateral for the loan. This ensures that if the borrower fails to pay the loan, the lender can seize ownership of the house to recover their money.

The lender may also review the borrower’s credit score and income level before approving them for a hard money loan.

What Is a Hard Money Loan in Real Estate?

A hard money loan in real estate is a type of loan used to finance the purchase, repair, or renovation of real estate property. Generally speaking, this type of loan secures the property rather than your credit score or income. 

Hard money loans are typically short-term solutions for real estate investors who do not have access to traditional financing options, such as bank loans. 

These loans are usually more expensive than conventional mortgages, but they allow investors to access capital quickly and with less paperwork.

What Are Hard Money Loan Lenders?

Hard money lenders are private individuals or organizations that provide capital to fund real estate projects or other activities that may require short-term financing.

At First Funding Investments, our experienced professionals provide legal advice and assistance with listing properties and understanding construction loans.

Hard Money Loans vs. Other Loans

A common doubt for those looking into hard money loans is how it compares to traditional loan options. Hard money loans differ from conventional banks or government-backed loans because they do not base on a borrower’s credit score or income. Instead, they base on the property’s value as collateral.

Other key differences include the following:

1. Interest Rates

Hard money loans typically have much higher interest rates than conventional mortgages.

2. Loan Terms

Most hard money lenders offer shorter-term financing options

3. Collateral

As mentioned above, most hard money lenders require some form of collateral to secure loan repayment if necessary.  

We Are Here to Help You Make the Best Investment Decisions

At First Funding Investment, we understand that every individual situation is unique, and we work diligently to provide customized solutions to fit Texas property needs. If you are looking for financing solutions or hard money loans when the “usual” financial sources cannot help, contact us and fill out our online form to get started today.