How does Hard Money Lending work?

Loan Types
Mortgage 101
Discover how hard money lending can help you purchase, renovate, or flip a property quickly.
Published on
July 27, 2023
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If you're in need of quick financing for a real estate investment, you may consider hard money lending as an option. Hard money loans are short-term, asset-based loans provided by private lenders or investors. They're often used by real estate investors who need to purchase, renovate, or flip a property quickly. In this blog post, we'll discuss how hard money lending works, including the qualification and approval process, collateral and loan terms, and interest rates and fees.

A. Qualification and Approval Process

Unlike traditional loans, hard money lenders focus more on the value of the property than the borrower's creditworthiness. They typically require less paperwork and documentation than conventional lenders. However, the borrower must provide evidence of the property's value and their ability to repay the loan.

To qualify for a hard money loan, you'll need to provide a detailed plan of how you plan to use the funds and how you'll repay the loan. The lender will also want to review your credit history, income, and assets to determine your ability to repay the loan.

B. Collateral and Loan Terms

Hard money loans are secured by the property itself, making them less risky for the lender. The lender will assess the value of the property and determine the maximum amount they're willing to lend. Typically, the loan amount is a percentage of the property's value, usually between 60% and 75%.

Loan terms for hard money loans are typically shorter than conventional loans, usually ranging from 6 to 24 months. They also have a higher interest rate, which reflects the increased risk for the lender. The interest rates for hard money loans can range from 7% to 15%, depending on the lender and the loan terms.

C. Interest Rates and Fees

In addition to the interest rates, hard money lenders may also charge fees for origination, underwriting, and other services. These fees can add up quickly, so it's important to understand the total cost of the loan before accepting it.

One advantage of hard money loans is that they can be funded quickly, sometimes in as little as a few days. This speed can be crucial for real estate investors who need to close on a property quickly.


In summary, hard money lending can be a useful tool for real estate investors who need quick financing for a property. However, it's important to understand the qualification and approval process, collateral and loan terms, and interest rates and fees before accepting a hard money loan. It's always a good idea to consult with a professional financial advisor before making any significant financial decisions.

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