A hard money loan is a loan that is backed by the value of the property it is being used for, not by the creditworthiness of the owner. They are often referred to as a “last resort” loan. This is because they have lower LTV ratios than traditional loans. The value of the house is the only form of protection if the borrower defaults.
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Hard Money Loan
Hard money loans carry very high-interest rates. The loans are usually used in quick turnaround situations or short-term financing. They can also be used as a way to try and stave off foreclosure. In real estate, hard money loans are frequently sought after by property flippers. These property flippers plan to renovate and sell the real estate that is being used as collateral. This option is appealing to them because they plan to sell the property at a profit within a short amount of time, and could be able to quickly pay off the loan. For them, the higher costs of a hard money loan are offset by the advantages they offer to the borrower. These include faster access to the capital, a less stringent approval process, and the risk on behalf of the lender that is taking up the financing.
