Hard Money Loans

Hard money is asset based lending. The property secures the loan and carries the underwriting, which is why these loans close in days rather than weeks and why they do not require tax returns or a debt to income calculation. You pay a premium over conventional financing in exchange for speed, flexibility and certainty of close.

What hard money is actually for

Hard money is a tool for situations where conventional financing either cannot move fast enough or cannot lend at all. It is not a cheaper option and it should not be a permanent one. Every hard money loan should be taken with a defined exit and a realistic date attached to it.

• The property needs renovation and will not qualify for conventional financing in current condition
• The seller requires a close faster than conventional underwriting allows
• The borrower cannot document income in the way a conventional lender requires
• The deal is time sensitive and certainty of close is worth more than the rate
• The property type or occupancy falls outside conventional guidelines

How to compare hard money lenders honestly

Rate is the least useful comparison point because the differences between lenders are usually small relative to the total cost of the project. What actually varies, and what actually costs investors money, is everything around the rate.

1. Origination points and whether they are charged on the full commitment or the drawn amount
2. Draw process speed, because a slow draw cycle stalls your renovation
3. Whether the lender funds rehab and at what percentage
4. Extension terms and fees, since projects run long more often than they run short
5. Whether the lender has closed deals like yours before, which predicts whether they will close yours

Hard money and business purpose lending

These loans are made for business, commercial and investment purposes only. They are not consumer mortgages and they are not subject to consumer mortgage protections. That is what allows the underwriting to focus on the asset, and it is also why the product is unsuitable for a primary residence.

Frequently asked questions