how a hard money loan works
hard money loans have terms based mainly on the value of the property being used as collateral not on the creditworthiness of the borrower since traditional lenders such as banks do not make hard money loans hard money lenders are often private individuals or companies that see value in this type of potentially risky venture interest rates on hard money loanshard money loans generally have a higher interest rate than traditional mortgages as of may 2024 the average interest rate offered on a hard money loan was between 10 and 18 this makes hard money loans much more expensive than a regular mortgage which during the same month offered an interest rate of between 6 95 and 10 5 1for flippers and short term investors this might not matter they may plan to pay the loan back quickly and this will reduce the effect of a high interest rate and make the loan cheaper for most other people however it makes sense to look for a loan with a lower interest rate the primary advantage of a hard money loan is speed if you can wait a few months for your loan to come through it might be better to look at refinancing your home or taking out a personal loan uses of hard money loanshard money loans are typically used by real estate investors developers and flippers hard money loans can be arranged much more quickly than a loan through a traditional bank in some cases hard money lenders can issue funds in as little as 10 business days while traditional banks have a wait time of 30 to 50 days for funding most hard money lenders can lend up to 65 to 75 of the property s current value and loan terms are generally short six to 18 months hard money loans may be sought by property flippers who plan to renovate and resell the real estate that is used as collateral for the financing often within one year if not sooner the higher cost of a hard money loan is offset by the fact that the borrower intends to pay off the loan relatively quickly 2hard money loans may be used in turnaround situations short term financing and by borrowers with poor credit but substantial equity in their property since it can be issued quickly a hard money loan can be used as a way to stave off foreclosure 