What Are Hard Money Loans?

If you have been around the mortgage industry you may have heard the term ‘hard money’ loans. These loans were very prevalent in the 1990’s and early 2000s. Many consumers believe these are easy loans to obtain and to a certain extent they would be correct, but you need to be very careful with this type of loan.

A hard money loan is usually associated with a commercial or investment property and is shorter term in nature. They can be provided on residential homes as well. The source of the money is non-traditional and comes from individual people or private companies who are willing to take the risk and carefully assess the collateral. The only security a hard money loan has is the collateral or home itself because if you default on the loan, you will lose ownership of the house.

While a hard money loan has a less stringent approval process it comes at a cost. Certainly, your credit is checked but you can expect significantly higher costs and a higher rate on the loan. It often requires a higher down payment as well because of the risk with at least 20% down or more.

Hard money loans are used for consumers who cannot obtain a traditional mortgage or those purchasing commercial property or homes they are planning to flip.

Hard money loans do serve a purpose but be careful on what you are getting into to. Please consult with a trusted financial advisor or mortgage professional to protect yourself as well.