Hard money definition

Hard money definition

The term “hard money” is defined as a loan that is asset based. Asset-based, or hard money loans, are made on the value of the asset (property) that the money is to be used to purchase.

Traditional bank loans require proof that you, as an individual, have an ability to repay them based on your creditworthiness and job stability. This means you personally have to meet strict criteria to receive the funding you need.

This slow, tedious, labor-intensive process requiring you, the borrower, to gather bank statements, pay stubs, and credit reports, fill out form after form and have an impeccable work history with verifiable employment. If you have any negative items on your credit report, those will have to be explained and rectified, if possible.

You’ll also likely need at least a 20% down payment. This money, too, will be scrutinized. If your down payment is “gifted” to you by a friend or family member, the bank will require a letter from the source. After you submit all of your documents, you will still have to wait weeks or even months before you find out if your loan will go through.

While all of this is taking place, you may be required to pay fees for a home inspection, appraisal, etc. that are non-refundable, even if you don’t get the loan.  If the bank does not approve of the condition of the property, you are back to square one, but a few hundred dollars poorer. Now, with even less money for the transaction, you must start your property search all over again.

Benefits of Hard Money Loans

While a hard money loan will be more expensive in terms of interest rates, it is often worth it in terms of speed of transaction and ideal lending terms. Hard money lenders are not as concerned with your credit score (although a good credit score can be helpful). They also do not base the real estate loan on your personal income.

Your hard money loan will be secured by the property itself and if you can’t or don’t repay the loan, the hard money lender will retain ownership of the property and resell it to get their money back. If the deal is good and the ARV (after repair value) is profitable, your real estate investment project could be funded in a matter of days or a couple of weeks.

Hard money loans are ideal for short-term real estate financing for periods of less than 5 years. That’s why many fix and flip real estate investors choose to go this route. The money is asset-based, comes in quick and often has flexible repayment terms with low down payments.

When is a Hard Money Loan the best option?

Hard money loans may be the best real estate funding options for short-term loans to finance fix-and-flip investments, transactional funding for wholesale real estate deals, or for people who do not qualify for traditional bank mortgages. Sometimes, people use hard money loans as “bridge loans” when they plan to refinance as soon as a better loan is an option.

How to find Hard Money Lenders

Until now, hard money lenders could be hard to find. Now with LendVent, simply create your borrower’s profile and you will be connected with hard money lenders who are eager to fund your deal, quickly and on terms that suit your needs. Create your profile now and start receiving funding offers so you can move on to the next step in your real estate investing future.