Hard Money Lending Explained

Private money, also known as “hard money,” is alive and well in most states. As the “Help I need money” noose tightens around the neck of home-builders and potential entrepreneurs, thoseĀ  with cash burning a hole in their pockets will open the doors for potential investors by way of this loan vehicle.

If you are planning on investing in a home and/or rehabbing it, and would like to possibly dip your toe in the deep end of the money pool to make the purchase please allow this informative article to explain how hard money works and what the difference is between hard money and private money.

Description of Hard Money. What it is and how it Works.

A hard money lender/loan is a specific type asset-based loan financing through which a borrower may not be able to get a traditional loan from one of the usual suspects like a bank or credit union. These loans are usually based on a short term not years to repay for real estate investors interested in buying or repairing distressed properties. Unlike banks, hard money lenders are quick to loan money to qualified borrowers wherein money can exchange hands in a day or week. If your credit is marginal, hard money lenders will occasionally require the borrower to back up the loan with “real” assets like a home, business or even a valuable vehicle that is free and clear.

Note #1: Hard money lenders are usually compared to private money lenders. However, a private lender will many times be more flexible and offer better terms and conditions to the borrower. Think: interest rate, duration of the loan, and necessary or unnecessary paperwork, Private lenders are many times a close friend, family member, business associate as well as a professional referral.
Note #2: There is also another hard money loan type that targets real estate borrowers. It’s called a “bridge loan; also known as a “swing” loan. The concept is close to what hard money lenders work with when interim financing is needed. These types of loans are more expensive than the others and mostly used for commercial real estate purchases when a permanent loan or “take out” loan is imminent. Ergo, if money is quickly needed for a short term, and the traditional loan boat has left the dock, hard money is worth the cost.