What is a hard money loan?

On Behalf of | Jul 6, 2023 | Real Estate Transactions | 0 comments

If you want to purchase an investment property, you may find it difficult to find traditional financing. Most lenders want property owners to occupy the property rather than invest in the property to rent or sell. However, if you want to invest in property to flip or rent, you may have to look at non-traditional loans, such as hard money loans.

Hard money loans allow you to purchase an investment property.

What are hard money loans?

Hard money loans are short-term loans. You may also hear the term bridge loan when referring to hard money loans. If you default on the loan payment, the lender can seize your property. Unlike other loans, hard money loans receive funding through private investors or companies. You do not receive a hard money loan from a bank.

What should you use hard money loans for?

You should consider hard money loans when purchasing an investment property to rent or sell. While some lenders will check your credit score, they are predominately interested in the value of your property. The repayment period only lasts about six months but can extend for a few years, whereas traditional loans can last between 15 and 30 years. You must be sure of your investment if you want to take on a hard money loan.

You should only use hard money loans for investments with which you can clearly see yourself making a profit. If you have uncertainty, the loan’s high-interest rates and short terms could backfire. Hard money loans are better if you have a lot of savings.