What You Need to Know about Hard Money Loans

Sometimes, getting a loan is easier said than done. Perhaps you have imperfect credit or a short timeline that requires fast approval. Whatever the case, if you are having difficulty with traditional lending, you could consider a hard money loan. This is an alternative type of lending that can have substantial benefits in certain situations.

What Is Hard Money?

Hard money loans are short-term loans that are secured by real estate equity. Typically, they are funded by private investors or bankers rather than traditional banks or credit unions. In most cases, hard money terms are between one and five years.

It is more common for a hard money loan to have a balloon payment at the end compared to a traditional loan. This means that the borrower makes smaller payments throughout the life of the loan but makes a large, lump-sum payment at the end.

What Are the Benefits?

A hard money loan may be a useful tool for you. These are some of the most significant advantages:

Easier Approval: The approval decision is based heavily on the value of the real estate. Therefore, you can likely get a loan more easily, especially if you have less-than-perfect credit. Additionally, there is usually less paperwork needed.
Short Timelines: For projects that need funding quickly, hard money can be the way to go. You can often get financing in a matter of days rather than weeks or months. For time-sensitive opportunities, this can be very valuable.
Flexible: Hard money is often much more flexible than traditional loans. If the collateral real estate has sufficient value, the loan can be used for almost any need. This contrasts with the heavy restrictions imposed on conventional real estate loans.

Should You Use a Hard Money Loan?

Hard money lending can be a great option for a lot of borrowers. It is typically more expensive than a traditional loan and the short terms mean that repayment is owed promptly. However, it is very beneficial in many circumstances.

One of the most common uses of hard money is to invest in real estate projects with a clear return on investment. Some borrowers also use hard money to fund new projects while they conclude earlier real estate deals (then use the proceeds from the earlier deal to repay the hard money loan). Ultimately, you will need to evaluate your specific financial needs.