A hard money loan is a specific type of loan that is secured by real property. These loans are typically issued by private investors or companies, rather than traditional lenders like banks. Hard money loans are considered loans of "last resort" or short-term bridge loans, and are primarily used for real estate transactions. They are similar to bridge loans, which usually have similar criteria for lending as well as costs to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.
Hard money loans have terms based mainly on the value of the property being used as collateral, not on the creditworthiness of the borrower. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan. Most hard money loans are used for projects lasting from a few months to a few years. Hard money loans can offer real estate investors a quick and relatively easy option for financing, but their relatively high interest rates and shorter repayment periods can make them risky.
