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WHAT IS HARD MONEY?
Updated September 15, 2010

The term "hard money" typically refers to a very specific type of privately issued asset based loan, usually secured by equity in real estate or a liquid financial asset. Some hard money lenders also lend against banking instruments, account receivables, and option contracts. Hard money loans became popular in United States during the 1950's after the banking industry underwent extreme reforms in credit evaluation.

Hard money loans are typically issued at much higher interest rates than conventional real estate loans. These loans are usually offered by non-traditional lenders such as private funding groups and non-deposit lending institutions. There are many different types of hard money loans available. One type that is very popular is the hard money rehab loan. Many hard money lenders will provide borrowers with acquisition and rehab funds. This enables a borrower to fix and flip a property. Most banks will not fund these transactions.

Hard money interest rates can range from 8% to 25%. Most hard money lenders also charge "points" as an origination fee. One point is one percent of the loan amount. The points charged often can be financed into the loan or paid at closing by the borrower. Points on hard money can range anywhere from 1-15 per transaction but typically range 4-8. Our fees can vary from 5-10 points depending on the deal itself. Overall, hard money is expensive but it's usually CHEAPER than taking on a partner.

Why would someone use hard money?
Because most hard money lenders are far more concerned about the real property involved in the transaction than the borrower buying it. This is not to say hard money lenders don't care about the person buying the real estate, but they simply care more about the specs of the project than typical lenders do. Most banks and traditional lenders care more about the borrower than the property. Hard money lenders tend to take to opposite approach. Most hard money lenders will loan you 40-75% of a the property's real market value. If you have a specific or unique need, than a hard money lender might be exactly what you need.