Please ensure Javascript is enabled for purposes of website accessibility
top of page

Hard Money Lending 101: All the Basics You Need to Know in 2022

So you're thinking about getting a hard money loan? Great choice! Hard money loans can be a great way to get the funding you need for your real estate investment projects. But before you dive in, it's important to understand all the basics of hard money lending. In this article, we'll go over everything you need to know about hard money loans in 2022. By the end of this article, you'll be an expert on the topic! So let's get started.​

Hard Money Lending 101: All the Basics You Need to Know in 2022

What Is Hard Money Lending?

Hard money lending is a type of short-term borrowing in which the lender provides funding based on the value of the property being used as collateral, rather than the borrower's creditworthiness. This type of financing is often used by investors to purchase distressed or undervalued properties.


The main difference between hard money loans and traditional loans is that hard money loans are asset-based, while traditional loans are credit-based. Hard money lenders will typically lend up to 70% of the after-repair value (ARV) of a property, while traditional lenders will only lend up to 80% of the home's appraised value.


What Kinds of Transactions Should Hard Money Loans Be Used For?

Investors typically use hard money loans to finance the purchase and/or rehabilitation of investment properties, such as:

  • fixer-uppers

  • multi-unit dwellings

  • commercial buildings

  • vacant land


Some typical situations where a hard money loan might be used include:

  • when the borrower has bad credit or no credit history

  • when the borrower needs funds quickly

  • when the property is in need of major repairs or renovations


What Are The Terms Of Hard Money Loans?

Hard money loans are typically short-term loans, with terms ranging from six months to two years. Some lenders may offer longer terms, but this is less common. Interest rates on hard money loans are usually higher than traditional bank loans, ranging from 10% to 18%. Some lenders may charge even higher rates, depending on the risk involved.


Hard money loans are also typically much smaller than bank loans, with most loans falling in the range of $50,000 to $100,000. This is because hard money lenders focus on the value of the property being used as collateral, rather than the borrower's creditworthiness.


What Is The Application Process For Hard Money Loans?

The application process for hard money loans is generally simpler and faster than the application process for traditional bank loans. Hard money lenders are more interested in the value of the property being used as collateral than they are in the borrower's credit history.


In most cases, hard money loans can be approved and funded in a matter of days or weeks. Traditional bank loans can take months to process.


What Is the Down Payment For A Hard Money Loan?

The down payment for a hard money loan is typically a minimum of 25% of the property's value. This means that if you're looking to borrow $100,000, you'll need to put down at least $25,000 of your own money first. The more equity you can bring to the table, the better your chances are of getting approved for a loan.


Hard money lenders will also usually require you to have a certain amount of skin in the game. This means that they'll want you to have some personal financial stake in the property that you're looking to purchase. This shows them that you're serious about the investment and that you're not just looking to flip the property for a quick profit.


What Are The Benefits Of Hard Money Lending?

There are several benefits of hard money lending, which is why this type of financing has become increasingly popular in recent years.


First and foremost, hard money loans are easier to obtain than traditional bank loans. This is because the approval process is based on the value of the property being used as collateral, rather than the borrower's credit score.


Another benefit of hard money lending is that it offers a shorter loan term than most traditional loans. This means that borrowers can save on interest payments over the life of the loan.


Lastly, hard money loans can be used for a variety of purposes, including investment properties, business expansion, and more.


If you're considering hard money lending as a financing option, be sure to contact a reputable lender who can help you navigate the process.


What Are The Disadvantages Of Hard Money Lending?

Hard money lending definitely has its advantages, but there are also some potential disadvantages to be aware of before you get started.


First and foremost, hard money loans tend to come with much higher interest rates than traditional bank loans. This is because the lender is taking on a higher level of risk by lending to someone with a less-than-stellar credit history.


Additionally, hard money loans typically have shorter terms than bank loans - often only 1-2 years. This means that you'll need to be able to repay the loan relatively quickly, which can be difficult if you're using the loan for a long-term investment.


Finally, hard money lenders may require that you put up collateral - such as real estate or equipment - to secure the loan. This means that you could lose your collateral if you default on the loan, so it's important to be sure that you can afford the repayments before taking out a hard money loan.


At the end of the day, hard money lending is a great way to get financing for your business or real estate project. If you’re interested in learning more about how it works or want to apply for a loan, be sure to call us today. We would be happy to answer any questions you have and help you through the process.

Do You Need a Hard Money Lender You Can Trust?

Persevere Lending (PL) is a California Corporation, specializing in the brokerage of privately funded mortgage transactions for real estate in Northern California, primarily in the greater Bay Area.  As you may know, Trust Deed investing, also known as “private” or “hard” money, is a niche alternative investment vehicle that offers an attractive return with the security of a Deed of Trust lien on the real estate collateral. We encourage you to call us at your earliest convenience to discuss private Trust Deed investing in more detail.  We can explain how you can enjoy tax-deferred interest income. We can also show you how even if a deal goes bad, you most likely will not lose a penny of your capital and you may actually make much more in the end. While nobody has a crystal ball, and we certainly will not pretend to know what will happen in the future, we do believe that there are trends in the market, both historical and current, that suggest that investing in real estate remains a secure and profitable investment option. Contact us today for your consultation!

bottom of page