What is Hard Money?

A hard money loan is a unique type of financing in which a borrower acquires capital secured by the intrinsic value of a piece of real estate. Hard money loans are usually given at a higher interest rate than traditional commercial or residential loans and are rarely granted by a commercial bank or other lending institution.

Hard money is analogous to a bridge loan, and generally has the same requirements for acquiring it. The main difference is that a bridge loan often is associated with a commercial or investment property that may be in development and does not yet qualify for standard financing. Whereas hard money is often associated with an asset-based loan with a high interest rate, and can be a sign of a borrowers troubled financial situation such as foreclosure or bankruptcy.

A hard money loan is much like a private money loan, as they both are collateralized. Hard money lenders are usually made up of a network of wealthy, private investors, often in the local area. Generally speaking, the credit score of the borrower is not relevant to the loan. The ability to acquire the loan based on the value of the said collateral or property. Usually the maximum LTV (loan to value) is 60-70%. Meaning, if the property is worth $200,000 you could feasibly borrow $120,000-140,000. The LTV is calculated on the "quick-sale" value of the property, and is low as a precaution to the event that a borrower does not pay.