Hard Money Loans

Hard Money loans are considered short-term bridge loans typically secured by an asset, such as real estate, which serves as collateral for the loan. They are primarily used by real estate investors, developers, and flippers that plan to sell the property in less than 12 months.

Instead of heavily scrutinizing your creditworthiness, the investor will focus on the value of the property you’re using as collateral.  Loan terms range from 6 months to 24 months.  During the term of the loan, you may only need to pay interest, with a balloon payment due at the end.  

The “hard” in “hard money” refers to the tangible asset (like real estate) that backs the loan. If a borrower defaults, the lender can take ownership of the asset to recover losses.  Make sure you select a term long enough to pay the loan back in full.

Hard money loans are most often used to buy property. Though in most ordinary cases, a traditional mortgage is likely a more financially stable option, there are times when a hard money loan may come in handy. 

  • One common use for hard money loans is in real estate investing, and specifically house-flipping. That’s when someone purchases a run-down home, fixes it up, then sells it, hopefully for profit. Hard money loans can be useful in that case because the term that borrowers have the loan is short — just until they’re able to fix and flip the property, then sell it.
  • A cash bidding battle may also be a case where a hard money loan can be handy. Say you absolutely want a piece of property, but don’t have the time to go through the intensive and time-consuming mortgage application process. A hard money loan can be approved quickly, getting you the cash you need to put down a competitive offer, and so can be used as a bridge loan.

Unlike traditional mortgages or other types of secured loans, the approval process for hard money loans is typically fast and less stringent, making them ideal if a purchase needs to happen quickly. From application to close, you are looking at 5 - 10 days.

Since Hard Money Loans are focus more on the property's value of being secured and less on credit history, there is much less documentation required.

  • Purchase Contract: The purchase contract is a legally binding agreement that outlines the terms between the buyer (you) and the seller. It’s crucial for the lender to understand the specifics of your property transaction.
  • Borrower Experience Sheet:   Summarize your real estate investment experience, including properties bought, renovated, and sold. This sheet demonstrates your ability to manage real estate projects.
  • Entity Documents: If you’re borrowing as a business entity, provide documents verifying your business’s existence and good standing.
  • Two Months of Bank Statements: Lenders review your recent bank statements to understand your cash flow and financial commitments.
  • Form of ID:  Provide valid identification, such as a driver’s license or passport.