Hard Money Lending: Meaning and All You Need to Know

hard money lending

Breaking down real estate finance starts with a basic understanding of a hard money loan. After all, hard money lending is a real estate investor’s best friend and the quickest way to close a deal. But before making any choices, you must be aware of what you’re getting into because hard money lending may quickly become quite complicated.

You must realize the following issues when researching real estate hard money lending: What are the advantages and disadvantages of such a plan? When should you finance real estate privately? Where can you locate real estate and hard money lenders? It’s best if you have more knowledge about hard currency in general. With the help of this manual, you should be able to learn everything there is to know concerning one of the most important sources of financing available today.

Hard Money Lending

A loan with real estate as security is known as hard money lending. Hard money lending is considered a “last resort” or quick bridging financing. These loans are typically employed in real estate transactions, and the lenders are frequently private persons or businesses rather than banks. A personal or unconventional lender provides hard money lending. Using the bought item as loan collateral exposes the borrower and the lender to less risk. Another name for this loan is a bridge loan. 

Rapid changes in direction between the sale and purchase of a property call for using hard money lending. Until the buyer obtains a conventional loan, they can also be used for speedy home financing. These loans are typically applied for in the real estate sector. Some investors purchase houses that require renovations, make the necessary repairs, and then offer the places for a profit. Flipping is what this means, and financing for it can be challenging.

If other real estate investors can’t get traditional commercial or rental property financing, they may use hard money loans.

What Is Hard Money Lending?

Hard money lending has conditions primarily determined by the value of the asset being used as security rather than by the borrower’s creditworthiness. Hard money lenders are frequently private individuals or businesses that find value in this potentially dangerous undertaking, as lending institutions such as banks do not issue hard money lending.

The loans may be a good option for people who want to fix up and sell the property used as collateral for the loan within a year or less. Given that most hard money lending is for between one and three years and other benefits they provide, the increased cost of hard money lending is more than covered by the borrower’s intention to repay the debt very fast.

Pros And Cons Of Hard Money Lending

Hard money lending is one of the most beneficial funding options available to investors. There aren’t many financial resources that can compete with hard money and provide the same competitive edge if any. After all, many investors owe a debt of gratitude to hard money loans for helping them get their initial agreements. Having said that, there are some limitations to hard money.

According to Loren Howard of Real Estate Bees, hard money lending is quick to approve and fund and can hasten the entire real estate investing process. They are unsuitable for people who don’t invest in real estate because their rates are much higher than those of a standard loan. Despite its tremendous advantages, real money has drawbacks that every investor should consider.

Let’s examine the benefits and drawbacks of hard money lending so that you may decide for yourself.

Pros of Hard Money Lending

You can gain from obtaining funding through a hard money loan in several ways, including:

  • Quickness: The Dodd-Frank Act was passed ten years ago as financial reform legislation. It entails new mortgage lending restrictions, which means it takes a long time (sometimes months) for an owner to secure a loan. On the other hand, hard money lending is quick because you can obtain a loan in a couple of days or weeks.  Large development projects require a lot of time, and hard money financing can hasten that process.
  • Flexibility: Because you are working directly with private investors, terms for hard money lending loans can be negotiated. Banks are less adaptable.
  • Collateral: If you choose hard money lending, your property will be your loan’s collateral. Some lenders will even take other assets as collateral for a loan, such as a retirement account or a home registered in your name.
  • No “Red Tape”: It is difficult, if not impossible, to obtain a loan for an income property using a regular mortgage. Traditional borrowers must be concerned with their credit score, LTV proportions, liabilities ratios, and other indicators for which they must meet requirements. On the other hand, hard money lending takes an asset-based approach and is more focused on the property than the borrower’s credentials.
  • Convenience: There is an aspect positive to be said about the ease of closing with cash. It might become burdensome and drain your focus and energy to provide bank records, income documents, tax filings, and leases to a lender. Contrarily, hard cash eliminates the middleman and most of the hassles.
  • Competitive Advantage: Using hard money, investors can outperform rivals, or at least those using conventional loans. If nothing else, hard money delivers cash and a speedy transaction, which are the two things that sellers appreciate.

Cons of Hard Money Lending

But there are several drawbacks to employing hard money for real estate investments:

  • Cost: Although convenience may be hard money lending’s most significant advantage, it is also one of its key disadvantages. Hard money lenders may demand up to 10 percentage points more than conventional loans since they are at more risk than borrowers. The range of interest rates is 10% to 15%. Expect additional fees, including origination fees and closing charges, to climb at a similar rate.
  • Short Repayment Period: The cost of being able to list a property on the market quickly is a shorter payback time. This may take anything from six to eighteen months. Make sure that you can sell the home quickly for a profit.

Hard Money Lending New Jersey

At Stratton Equities, our hard money loan programs in New Jersey are based on the value of an investment property, not the borrower’s credit score. Due to recent foreclosures, poor credit, or short sales, we can fund agreements for borrowers who cannot obtain traditional financing. A real estate investor can use the value of the investment property as collateral to get a hard money loan in New Jersey, even with damaged credit.

So, a complex money program called an asset-based loan is an excellent choice for all real estate investors, from newcomers with bad credit to seasoned pros who want to get more cash and grow their businesses. Hard money loans for investment properties that are single-family, multi-family, mixed-use, or commercial are funded by Stratton Equities.

Hard-money asset-based loans typically have higher interest rates than traditional mortgages. Interest rates on hard money loans usually range from 9.99% to 10.49%, and investors who qualify for Stratton Equities’ aggressive loan programs can get some of the best rates in the business.

Due to the higher risk involved with these loans and the lightning-fast efficiency with which they can process and finance transactions, hard money lending often charges higher interest rates.

Working with a skilled private lender in New Jersey to get hard money is a potent tool for investors who need to act quickly. These short-term (often 12-month) loans are the ideal way to help any investment achieve success.

Read Also: Is a Bridging Loan Suitable For Your Needs? It’s time to find out!

Hard Money Lending Houston

Are you looking for the best hard money lenders in Houston, Texas, to help you pay for your next real estate project? Your quick and straightforward fix is Source Capital. We provide hard money loans for fix-and-flip projects, commercial real estate initiatives, and many other legitimate real estate investing enterprises.

When you work with Source Capital, you have access to the best industry knowledge, a team of dedicated experts, and customer service that can’t be beaten. This means that you can get a Houston hard money loan no matter how much money you have. In contrast to a conventional mortgage, we don’t demand a flawless credit history to obtain funding. The next time you need money and are looking for hard money lenders in Houston, Texas, you won’t have to worry that your credit score will keep you from getting it.

What Is an Example of Hard Money?

Wholesale funding is an example of hard money.

Why Is It Called Hard Money?

It is known as “hard money” because it is secured by the value of a tangible object, like a house or automobile. This hard money loan has a more solid value than an unbacked loan because of the collateral for the loan.

Why Would You Use a Hard Money Lender?

Because hard money lenders provide a quick and often less demanding approval process, making them excellent if a transaction needs to be made reasonably quickly. This is in contrast to standard mortgages or other types of secured loans. From application to closing, buying a property with a mortgage typically takes longer than a month.

What Are Typical Terms for Hard Money Loans?

What Are Hard Money Loan’s Typical Terms? Hard money loans are short-term loans, as opposed to consumer loans. For 15 or 30 years, they are not intended to hold. They often have terms of six to 18 months, which is just enough time for you to fix up a house and sell it.

What Are the Risks of a Hard Money Loan?

Hard-money loan risk:

  • Due to real property protection, they have a lower loan-to-value ratio.
  • They levy higher interest rates.
  • The risk to the lender is high.
  • Due to property laws and regulations, the lender may not finance owner-occupied homes.

How Is a Hard Money Loan Paid Back?

Hard money lenders provide short-term loans with terms ranging from six months to 24 months. Usually, they are set up as 30-year loans with interest-only payments. At the end of the loan, the borrower makes a balloon payment to pay back the debt.

Can You Pay off Hard Money Loan Early?

The cost of underwriting fees can range from $500 to $2,500. Since they are paid by the interest you pay them, some hard money lenders also impose prepayment penalties. In other words, if you pay off the loan early, you might have to pay an additional fee, raising the cost of the loan.


In the housing market, it is now common knowledge what a hard money loan is and how it can be used to buy property. If nothing else, investors who use hard money loans have an advantage over traditional funding. Hard-money borrowers should be able to get funding more rapidly, and since their offers are made in cash, sellers are likely to favor them. However, you might not want to neglect hard money if you’re looking for finance for a deal because it might be the only source that can give you what you need.


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