What is Hard Money Lending?

Wondering what hard money lending is? A hard money loan is a kind of loan that is secured by real estate. Hard money loans are also known as short-term bridge loans or loans of last resort.

Hard money loans are mainly used in real estate transactions, and the lender is typically an individual or a company rather than a bank. Here is how hard money lending in Phoenix, AZ works:

How a hard money loan works

Hard money loans usually have terms based on the value of the property or real estate used as collateral, rather than the credit score and history of the borrower. Traditional lenders, like banks, don’t make hard money loans. Hard money lenders are usually private companies or individuals that view value in this kind of risky venture.

Hard money loans are often sought out by people who flip property and plan to buy, renovate, and resell the real estate property used as collateral for the financing. These property flippers usually resell the real estate property within a year if not sooner. Hard money loans have higher costs, but this is offset by the fact that the borrower often plans to pay back the loan fairly quickly. Most hard money loans are paid back within one to three years.

Benefits of hard money loans

One of the top benefits of a hard money loan is the approval process. The approval process is typically much quicker than applying for a mortgage or another traditional loan through a bank. Private investors who back the hard money loan can make decisions more quickly, since the lender is more focused on collateral than the financial position of the applicant.

Lenders usually spend less time going through a loan application reviewing financial documents and verifying their income. The process will be smoother if the borrower has a current relationship with the lender Colonial Capital.

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