Hard Money Loan
A hard money loan is a short-term loan that is most encountered within real estate transactions. The loan itself is secured within 12 months, with payments being typically comprised solely of interest and a balloon payment at the end of term. Hard money lenders, who are typically private, non-banking institutions, can get individuals a loan in a particularly fast manner, which can be preferred over a longer-term mortgage application process. This type of loan is also called a short-term bridge loan since it bridges the finance gap between purchase and resale of the property. Hard money lending can be viewed as an investment. The process of receiving a hard money loan is fairly simple. If a real estate investor is facing financial issues at the time of purchase for a property requires quick finance to close on it, they can apply for a hard money loan. Upon receiving the loan, they can proceed in purchasing the property, but ownership is given to the lender as collateral security until the loan (with interest rate) is paid off in the short term. Advantages of hard money loans include but are not exclusive to quick disbursals of loans, easier financial arrangements, flexible lending options, and easier close offs for investors. Some disadvantages would be that interest expenses are much higher than traditional loan providers, and that lenders always prefer short term loan periods. The property types for hard money loans can be single-family residential, multi-family residential, commercial, land, and industrial. However, some hard money lenders prefer to specialize in one property type. Hard money loans are ideal for fix and flips, land loans, construction loans, when buyers have credit issues, or when real estate investors need to act quickly.
Used in a Sentence
If a real estate investor is interested in fixing and flipping a house, they can get a hard money loan to assist them with their project.