Hard money loans are short-term, asset-based loans used primarily by real estate investors to quickly buy or rehab properties. Unlike traditional mortgages that focus on your income and credit score, approval is based on the value of the property acting as collateral. 

Because these loans carry higher risk for the lender, they are significantly more expensive and restrictive than conventional loans.

How They Work

• Approval Criteria: Lenders focus on the property's equity and the project's profit potential. Your credit score and income are secondary, though some lenders may require a minimum score (typically 600+).

• Speed: You can often secure funding in as little as 5 to 15 business days, making them ideal for competitive real estate markets.

• Loan-to-Value (LTV): Lenders will only finance a portion of the property's value, typically capping the loan at 65% to 75% LTV. 

 

Typical Terms & Costs

• Interest Rates: Rates typically range from 9% to 15% annually.

• Origination Fees: You can expect to pay "points" at closing, usually amounting to 2% to 5% of the total loan amount.

• Repayment Terms: Loan terms are short, usually lasting from 6 to 36 months. Many require interest-only monthly payments with a large "balloon payment" for the principal balance due at the end of the term.

• Down Payment: Borrowers typically need to bring a substantial down payment, ranging from 25% to 40%. 

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When They Make Sense
• Fix-and-Flip Projects: You need fast funding to buy a distressed property, renovate it, and sell it quickly.
• Bridge Loans: You want to purchase a new investment property before your current one sells.
• Distressed Properties: The home is in such poor condition that it will not qualify for a conventional mortgage.