A hard money loan is a short-term loan secured primarily by the value of the underlying property rather than the borrower's credit profile or income. Private lenders and specialized lending companies, rather than traditional banks, issue these loans, and they typically close faster than conventional financing since underwriting focuses on the asset and the deal rather than extensive borrower documentation.
Hard money loans commonly fund situations where speed or flexibility matters more than cost, such as fix-and-flip projects, properties that need renovation before they can qualify for conventional financing, or acquisitions with tight closing timelines. In exchange for that speed and flexibility, hard money loans carry meaningfully higher interest rates than bank financing, often in the low double digits, plus origination fees, and terms are typically limited to one or two years. Because of the cost, hard money is generally treated as bridge or transitional capital rather than a long-term financing solution, with the expectation that the borrower will refinance into conventional debt or sell the property once the business plan is executed.
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