WHAT IS
HARD MONEY?

A true Hard Money Loan is an Asset-Based Loan, which means the financing is based on the loan-to-value (LTV) of the Asset. Unlike the Fix and Flip loan, it doesn’t go through full underwriting and there’s no minimum FICO requirement for the borrower, as it doesn’t have many guidelines and criteria. (Although your credit report score does not matter, you will still need to obtain a credit report.)

 

This type of loan doesn’t have as many restrictions as one might think considering that it’s just money, so no more having to worry about bankruptcies, foreclosures, collections, etc.

 

Due to the lack of guidelines and underwriting, a true Hard Money Loan is generally capped at 75% LTV or less. For example, let’s say you have a home worth $1M, if you want $500K against it (50% LTV), you’re able to receive the money within 1-2 weeks (from the day of application), commonly as a first lean position - because it’s just money. It’s normally in the form of a Bridge Loan, which is short-term financing in a period of 12-24 months.

 

One of the reasons why Hard Money Loans are for investment properties ONLY, is due to the high-cost regulations and predatory lending – you can’t put such high interest rates and cost on an owner-occupied property.

 

In certain states, there are non-judicial foreclosure laws, which allow a Hard Money lender to get their money back quickly if the borrower defaults on the mortgage.

 

These foreclosure laws make the lender more comfortable doing high-risk loans, usually the money is not sold on the secondary market – the lender holds the note, and they don’t sell the paper.