What is Hard Money Lending?

Loan Types
Nontraditional Mortgages
If you are looking to invest in real estate, but don't have access to conventional financing like traditional bank loans, hard money lending may be right for you.
Published on
July 16, 2024
Copy link

Hard money lending is a term that refers to loans made by private investors, who then purchase the property that you want to buy. These loans are often used for projects or properties that banks don't consider high-risk investments, but can still be very beneficial for both lenders and borrowers. Here's what you need to know about hard money lending:

What is hard money lending?

Hard money lending is one of the most common forms of alternative mortgages. It's a type of loan that is not regulated by the government and only available to borrowers who meet specific criteria.

Hard money lenders are typically local, so they can make decisions quickly as real estate markets fluctuate. They also have access to more capital than banks or other traditional lenders, allowing them to offer larger loans with higher rates and shorter terms.

How does hard money lending work?

Hard money lenders are able to provide loans to borrowers who have less than perfect credit. The loan is based on the value of the property, not the borrower's credit score. If a borrower defaults on a hard money loan, the lender can take over and sell the property to recoup some of its losses. This may seem drastic, but it's an extremely effective tool for recovering funds from borrowers who fall behind on their payments. A hard money loan can be structured so that you pay only interest while you're building equity in your home or business property; once you've paid off some (or all) of your principal balance, the loan converts into a conventional mortgage that requires regular monthly payments and interest rates.

What are the benefits of a hard money loan?
  • Hard money loans are fast. If you're in a hurry to close on a real estate deal, hard money lenders may be able to help. A traditional home loan can take 3-6 months from application to closing, but hard money lenders often close loans within 14 days or less.
  • Hard money loans are flexible. The terms of hard money loans depend on the project and the borrower's credit score—but unlike conventional financing, they often allow for more creative payment structures, like balloon payments and interest-only payments (which make it easier for borrowers to manage their cash flow).
  • Hard money loans are non-QM (non-qualified mortgage) loans. Unlike conventional mortgages, which must meet strict underwriting requirements set by Fannie Mae and Freddie Mac; these high-risk loans don't have any such restrictions—and this means they can give you access to capital when other options aren't available.
  • Hard money loans are for cash flow Investors. If you're looking for a way out of your current property situation but don't want to go through the hassle of selling it first - or if there isn't enough equity in your property yet - using hard money could be an option worth considering!
Hard money vs soft money

Hard money loans are typically for short-term, high risk transactions. Typically, these are short-term loans that last between six months and two years. The interest rates on these loans can be quite high and also vary depending on the amount of the loan and the borrower's credit score.

Soft money loans are typically for long-term, low risk transactions. These include residential real estate or commercial real estate deals where you're borrowing from a private lender to purchase property that's been around for at least five years (usually). The interest rates on soft money loans tend to be lower than hard money because they don't involve as much risk for the lender—if you default on your loan, there's no chance this could cause them any financial damage in terms of repossession or foreclosure costs; however, if you do default on your soft money loan then it will just take longer than usual before they get their money back

Hard money loans vs Non-QM loan

Hard money loans are for investment properties and non-QM loans are for primary residences or investment properties.

Hard money loans require a higher down payment than non-QM loans, but they have lower interest rates.

A hard money loan is perfect for someone who wants to purchase an income property, but doesn't have enough cash on hand to make the down payment and furnishings/appliances.

Hard money lenders are an excellent option for getting alternative mortgages.

Hard money lenders are an excellent option for getting alternative mortgages. If you have bad credit or no credit at all, a hard money lender may be able to provide you with the funding you need.


In conclusion, hard money loans have many benefits over traditional mortgages. We hope that this article has given you a better understanding of the process and some insight into whether or not it is right for your situation. If so, we encourage you to check out our website for more information on how to apply!

Get started today
Whether you're actively looking, or just researching, you can find out what you qualify for and get connected with a pro.
Apply Now
Questions? We have answers.
Tap into expert mortgage advice with just a click! Our specialists are prepared to simplify mortgages, answer your questions, and tailor the perfect financing solution for you.
Talk with a pro
Latest posts

Don't Stop Here

Check out some of these related articles.

Maximizing Your Fix and Flip Project with Hard Money Loans: Benefits, Strategies, and Key Considerations

Hard money loans provide a valuable financing option for fix-and-flip real estate projects. Learn more about the advantages of utilizing hard money loans for your next project.
Read post

The Unseen Advantages: Benefits of Choosing an Adjustable Rate Mortgages

Discover the unseen advantages and benefits of choosing an adjustable rate mortgage (ARM) in this informative blog post. Learn about the lower initial interest rates, lower payments in the early years, potential for rate drops, and why ARMs are ideal for short-term ownership. Consider the benefits and flexibility of an adjustable rate mortgage for your financial goals.
Read post

Innovative Lending Strategies for the FSBO Real Estate Market: A Comprehensive Guide

Discover the significance of innovative lending strategies in the FSBO real estate market. Learn about current trends, challenges, and successful case studies to make informed decisions.
Read post