Hard money loans, not surprisingly, are loans secured from hard money lenders used to purchase real estate. They are secured by the property being purchased so unlike conventional loans, the borrowers credit score is often not a factor in whether or not they can get a loan from a hard money lender.
Because of the risk involved in hard money loans (they tend to default at a much higher rate than conventional loans due to the fact that they’re a loan of last resort when borrowers can’t get conventional financing), the interest rates charged by hard money lenders is very, very high, often in the range of 15%-20%. The typical customer for a hard money loan is an individual who has income and some savings but bad credit and/or bankruptcies and foreclosures in their past.
Some investors and house flippers use hard money loans to purchase real estate, as hard money loans can include the repair and rehab costs a property needs (something conventional financing won’t allow), and hard money loans can also be approved and funded very quickly when time is of an essence, avoiding the delays that conventional financing often involves.
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