Hard Money Loan
Definition
A hard money loan is an asset-based loan secured primarily by the value of real property rather than the borrower's creditworthiness. Hard money lenders focus on the property's current value and after-repair value (ARV) when making lending decisions. These loans are issued by private investors or companies, not traditional banks, and typically feature higher interest rates (8–15%), shorter terms (6–36 months), and faster closings (often within 7–14 days). Hard money loans are widely used by real estate investors for fix-and-flip projects, land purchases, and situations where speed is more important than cost.
Example
A fix-and-flip investor needs to close on a distressed property in 10 days. A hard money lender provides $300,000 at 12% interest with 2 points origination, secured by the property itself. The investor renovates and sells the property in 5 months, repaying the lender from sale proceeds.
Related Terms
Bridge Loan
A bridge loan is a short-term financing solution designed to 'bridge' the gap between an immediate c...
After-Repair Value (ARV)
After-Repair Value (ARV) is the estimated market value of a property after all planned renovations a...
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR) is a financial metric that measures a business's ability to s...
Fix and Flip
Fix and flip is a real estate investment strategy where an investor purchases a distressed or underv...
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