What Is a Hard Money Loan? A Complete Guide

by HMLS

Whether you need extra cash to secure a property, fund your next project, or manage a financial crisis, taking out a loan sounds like a natural next step.

While traditional lenders, such as banks and credit unions, are probably the first to come to mind, getting a loan from these financial institutions is usually not the easiest option. If you’re in a hurry or don’t have the greatest credit score, these loans might be completely out of reach, which is why you should consider other options, such as hard money loans.

What are hard money loans, though, and how do they work? There are a lot of misconceptions about this type of loan, and this article will try to debunk those myths.

We will answer all the questions you might have about hard money loans, walk you through the process, and explain how to apply for one with Hard Money Loan Solutions.

What Are Hard Money Loans?

A hard money loan is a short-term loan (usually from one to three years) secured by real property, where the asset being purchased typically serves as collateral. This type of financing is offered by non-traditional lenders, such as private investors and companies that specialize in this type of financing.

One of the biggest advantages of hard money loans is that they take less time to close—to cut the closing time, the lenders usually don’t check your credit history. Not investigating or considering the financial records of the borrower benefits everyone who cannot get a loan from a bank due to poor credit history. 

Hard money loans are suitable for people who:

  • Need money for purchasing a property
  • Have been denied traditional financing by banks, credit unions, etc.
  • Want a more straightforward process and a faster closing time
  • Have enough funds to make a larger down payment

Are Hard Money Loans Safe?

Yes, hard money loans are completely safe and reliable as long as you choose a reputable lender who is experienced and has good ratings.

Hard money lenders are semi-institutional and the most organized form of the non-traditional lending community. Unlike private lenders that don’t need a license to provide financing, most states regulate hard money loans by requiring lenders to obtain a license, making them a safer option.

Types of Hard Money Loans

Depending on your needs, you can choose between a variety of hard money loans. The following table contains more information about some of the most sought-after ones:

Hard Money Loan TypeExplanation
Bridge loansIf you’re in the process of renovating an old property or you’ve bought a new one and need to make some improvements, a bridge loan is one of the best ways to secure the short-term funding you need to finish the project without delays
Cash-out/refinance loansCash-out or refinance loans are suitable for purchasing residential and commercial properties. Traditional lending institutions have extra strict criteria for this type of loan, so getting one from a hard money lender is the best way to expedite the process
Fix and flip loansThis type of loan is ideal for investors who want to purchase a property, remodel it, and then sell it for profit. Hard money loans for real estate can help you avoid excessive bureaucracy and credit score checks and help you get started on the project in a matter of days or weeks
Rehab loansThese loans are designed for home improvement projects and residential property rehabs, which is why people usually need them as quickly as possible. Rehab loans come with fast and straightforward approval and closing process
Commercial loansIf you need funding for refinancing a commercial property, getting this loan from a hard money lender will help the process move along and ensure you don’t miss deadlines

Hard Money Loans vs. Mortgage Loans

In some ways, hard money loans resemble the traditional loans—you find a lender, apply for a loan, get approved, and get funded. You have a predetermined amount of time to pay off your debt with interest. 

The details, however, vary significantly and make all the difference when choosing the option that’s best for you. While many people apply for hard money loans as a last resort, those with good credit scores opt for them too due to their immense convenience.

Source: Tima Miroshnichenko

Consult the following table to see how hard money loans differ from traditional ones:

What Is Different?Hard Money LoansTraditional Mortgage
PurposeUsed by businesses and real estate investors for profit—usually for doing construction work, flipping houses, and making improvements on residential or commercial propertiesUsed by people who are buying a home to live in
Approval criteriaLenders rely on the value of the collateral (property) and the LTV ratioLending institutions are focused on the borrower’s income, credit score, credit history, bank statements, etc.
Approval processClosing time is faster because the lender doesn’t go over the borrower’s financial historyApproval process takes a lot of time due to the financial history checking
Term lengthShort-term loans, usually 1–3 yearsLong-term loans, typically 5–30 years
Interest rates and feesHigher interest rates, 6%–12% on averageLower interest rates, typically 4%–6%, depending on the loan length and whether the rates are adjustable or fixed

How Does Hard Money Lending Work?

Hard money lenders use assets as collateral, so the terms of the loan are based mainly on the value of the said asset. In most cases, real property is used as collateral, but other hard assets can be used to secure the loan as well, including:

  • Vehicles
  • Machines
  • Equipment
  • Works of art
  • Precious metals

This type of loan is not completely regulated like traditional ones, so the fees, terms, rates, and the whole process can vary depending on the lender. What is generally the same is that you cannot borrow 100% of the property’s value because the lender needs room for profit in case of default.

So what exactly happens if you default? In the off chance that you aren’t able to pay back your loan, the lender will foreclose or assume the ownership of your property. They can choose whether to liquidate the property, sell it fast but at a discounted rate, or complete the project themselves (in the case of real property) and sell it for the defaulted loan amount or more.

Source: Karolina Grabowska

Hard Money Lending Terms

As mentioned, hard money loans are typically short-term loans. While the average duration of this type of loan is one to three years, the exact term of a loan depends on the lender and can be arranged between the parties.

Long-term hard money loans are somewhat rare and are usually used for rental properties.

Hard Money Loan Amounts

The amount of hard money you can borrow also varies significantly depending on the lender as well as the property itself—these loans can go anywhere from $50,000 to $50 million. 

The actual amount depends on the loan-to-value (LTV) ratio, which is the maximum amount the lender is willing to finance, calculated as a percentage of the property’s purchase price. Let’s say the purchase price of the asset is $200,000, and the LTV is 70%—the loan amount will be $140,000. In certain cases (if the property has a lot of potential), the lender might offer a loan at 80% LTV.

Source: Rodnae PRODUCTIONS

Do Hard Money Loans Require Upfront Fees?

Yes, most hard money lenders require borrowers to make some sort of a down payment. While some require a small, fixed retainer fee, others will charge $500–$5,000 depending on the amount of diligence needed to approve the loan.

How To Get a Hard Money Loan

The process of getting a hard money loan depends mostly on the lender and will differ significantly from case to case. Here’s what it usually takes to get a hard money loan:

  1. Finding a lender—Getting rejected for a loan by a bank or credit union can discourage many people from searching for other options, but it shouldn’t. Finding a hard money lender is an easy task. All you have to do is a quick Google search, but make sure the lender you choose has a legitimate website and good ratings and reviews. If you have a lawyer, have them check the lender out as well 
  2. Scheduling a meeting—Make sure the lender you chose specializes in and offers the type of loan you need and arrange a meeting to discuss it further
  3. Preparing a contract—If you agree with the terms and conditions of the loan and are sure you are being offered a good deal, move on to the next step of the process
  4. Getting the asset appraised—The lender will either get a trusted professional to assess your property or give you a list of appraisers so you can choose
  5. Preparing documentation—Not every lender will require the same documentation (some will require less than others), and it’s always best to ask on the spot to make sure you don’t leave out an important document
  6. Consulting with a lawyer—It’s always best to have some legal assistance when handling important proceedings. Make sure you’re legally protected, especially once you get an offer

How To Qualify for a Hard Money Loan

As mentioned earlier in the article, what qualifies you for a hard money loan is the deal itself. Hard money lenders don’t dive deep into your financial history but instead focus on the asset that’s the purpose of the loan. Most lenders base the property’s equity on the LTV—they do this by studying market comps and assessing the value following the rehab.

They will approve the loan if they can secure enough equity in the property.

Hard Money Loan Application Process

The actual loan application process consists of two parts:

  1. Pre-qualification—This step happens once you contact the lender you opt for. During this step of the process, the lender will start gathering information about you and the property so they can roughly estimate ARV and calculate the investment risks. You may have to provide several documents, such as:
    1. Government-issued photo ID or driver’s license
    2. Purchase contract
    3. Financial records from the previous 60 days
    4. Renovation plans (if that’s the reason for applying for a loan)
  2. Application—Once the lender checks the documentation, you will have to complete the following forms:
    1. Application form
    2. Proof of income and employment
    3. Authorization to obtain credit report
    4. Letter of explanation

Keep in mind that the lender is obligated to provide you with a Good Faith Estimate and a Truth-in-Lending Statement within three days of completing the application to help you understand all the terms and costs associated with the loan.

Source: Romain Dancre

Hard Money Loans—Pros and Cons

As with any other type of financing, there are certain advantages and disadvantages of getting a hard money loan—consult the table below for more details:

Hard Money Loans ProsHard Money Loans Cons
They close faster than loans taken from traditional financial institutions
You can get a hard money loan even if you have a bad credit score as lenders don’t pay much attention to your credit history
The whole process of applying for and getting a hard money loan is much more straightforward and quicker
The terms of the loan are flexible, and you can usually negotiate and revise the repayment schedule and duration of the loan
Interest rates are usually higher as the lenders assume increased risk when providing immediate access to funds
They are short-term loans
Down payments are larger (25%–30%) and depend on the lender

Hard Money Loan Solutions—The Financial Support You Need

Getting denied or not qualifying for a bank loan in a time of need can be dreadful. Being in a hurry and getting slowed down by paperwork, slow approval time, and an excruciatingly long closure process is no picnic either. If you need less strict criteria, faster processing, and flexibility, apply for a hard money loan with Hard Money Loan Solutions!

The company offers premium service and is recognized for it by a 5-star Google rating and rave reviews. The leader in the non-traditional funding industry sets itself apart from the rest with:

  • Flexibility—Each case is treated uniquely, and the offers are tailored to clients’ specific needs
  • Easy approval process—You don’t have to submit financial statements, credit records, and bank statements or fill out an absurd amount of paperwork to start the process. All you need to provide is the name of your corporation
  • Commitment—Once your application is approved, Hard Money Loan Solutions will not back out from the deal
  • Transparency—The company values transparency above all. You will be guided through the whole process and provided with detailed information so you’ll know everything that’s going on at all times

Hard Money Loan Solutions Services

Hard Money Loan Solutions offers numerous types of loans, including bridge loans, purchase loans, foreclosure loans, fix and flip loans, residential owner-occupied loans, and more. You can use your loan on a wide range of structures, such as:

  • Apartments
  • Townhomes
  • Multi-family units
  • Single-family structures
  • Personal and commercial condos

In the following table, you can find the specifics of HML Solutions loans:

ParametersDetails
Term1–3 years
Loan amount$100,000–$50,000,000
LTVUp to 70% of the purchase price or asset value (whichever is lower)
Interest rate9.99%–12%
Rate typeFixed
Origination fee2 points or 2%
Closing3 days–2 weeks
AmortizationInterest only

How To Apply for a Hard Money Loan at HML Solutions

Applying for a loan at Hard Money Loan Solutions is a fast and straightforward process. It usually consists of the following parts:

  1. Phone call
    1. Visit the website to find the form
    2. Fill out the application
    3. Discuss the deal with the lender once they call you
  2. Approval process—HML Solutions will analyze the deal, compare prices on the market to assess the value roughly, and might request the borrower to get an appraisal. Whether or not the candidate qualifies for a loan depends on the equity of the property (everyone who has enough money to meet LTV or enough equity for refinancing gets approved)
  3. Deal closure—Once you agree upon the terms and conditions and strike a deal, all that’s left is to wait for a title and the necessary paperwork

Keep in mind that it takes 3–5 days to close the deal if the title is ready. If it’s not, it can take 7–10 days.

Bypass the annoying bureaucracy and cut the closing time in over a half—apply for a hard money loan at HML Solutions!

Featured image source: Karolina Grabowska

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