A hard money loan is a way to borrow without using traditional mortgage lenders. It’s a specific type of asset-based loan financing through which a borrower receives funds secured by real property as collateral. Typically, they are issues by private investors or companies. If anything goes wrong and you can’t repay the loan, hard money lenders will get their money back by taking the collateral and selling it. Therefore the value of the collateral is more important than your financial position. Generally hard money loans are short-term and last 1 to 5 years. Interest rates are generally higher than for traditional loans.
Why go for hard money? When a loan needs to happen quickly, or when traditional lenders will not approve a loan, it may be an option. While they are more expensive, hard money loan agreements tend to be more flexible, as well; without a standardized underwriting process, each deal is evaluated individually.