Hard money loans are non-bank loans that investors typically use to make large investments in real estate or private equity. These include loans from private investors, governments, or companies. Hard money lenders typically have higher interest rates, unlike residential property or conventional commercial loans, due to the short duration involved in loan processing and the higher risk involved.

What’re the Features of Hard Money Loans?

Offer high-interest rates

Interest rates on hard money loans are generally higher than those of traditional bank loans because the lender takes more risk in making the loan. The interest rate can range from 10% to 20%, depending on several factors such as the loan amount.

No documentation required

Unlike traditional mortgages, which require all kinds of documentation from borrowers to verify their income, hard money loans don’t require any paperwork aside from providing information about yourself and your property and agreeing on an interest rate with the lender.

No credit checks required

Most lenders do not require a credit check for hard money loans, so you don’t need to worry about your credit history affecting your loan application. Having a clean financial history is good, but if it’s not too bad, you can still get approved for hard money loans if you’re willing to put up some collateral.

No collateral required

Most hard money lenders do not require any type of collateral from clients when they take up a loan from them. This means that even if your property is worth less than what you owe on it, you will still be able to get funds for it through a hard money loan. However, some lenders may ask for security bonds or deeds of trust as collateral before disbursing funds from their accounts into yours.

Fast processing period

The fast processing period of hard money loans is one of the most integral features you need to know about. If you have been searching for a bank loan, you would have noticed that most banks take more time to process your application. This is not just because they want to make sure that they don’t approve any applications that are not genuine but also because they want to make sure that they don’t approve anyone who doesn’t deserve their help.

No prepayment penalties

Hard money loans mostly attract no prepayment penalties, which means that if you pay off your loan early before its due date, there will be no additional fees associated with doing so. Unlike traditional loans, there are no late fees or other penalties for paying off your hard money loan early, as long as you pay the loan within the specified timeline.

Flexible repayment terms

Most hard money lenders offer a variety of flexible repayment terms, ranging from a short term of three months to as long as a couple of years. Most loans are for one year and can be repaid over time. The lender will determine the best repayment plan for you, depending on your financial situation, goals, and plans for the property, and the amount you need to invest.

No hidden fees

The main feature of hard money loans is that there are no hidden fees. The borrower does not have to pay any fees for getting the loan. This is because no intermediaries are involved in the process, which means that no one will benefit from the deal apart from the investor.

Flexible terms

Hard money loans are usually available with flexible terms, which means you can take out a loan for any amount you need and pay it back at your own pace over time. You don’t have to wait until your financial situation improves to pay back the loan in full, making hard money loans a great option for small businesses with temporary needs such as inventory or seasonal sales.

Key Takeaway

Hard money loans are private loans that are secured by real estate. These loans are made by private investors and can be used to purchase real estate, renovate a property, or refinance a mortgage.

Hard money lenders offer investors financing options unavailable through banks and other traditional lending institutions. Hard money lenders also provide incentives for borrowers to use hard money loans to improve their properties.