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.
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.