What is hard money?

Hard money loans are a type of financing that is secured by a physical asset, such as real estate. These loans are typically provided by private investors or companies, rather than traditional financial institutions like banks. They are often used as a short-term financing solution for real estate investments, such as for the purpose of flipping a house or for financing the construction of a new property.

One of the main characteristics of hard money loans is that they are asset-based, meaning that they are secured by the value of the property being used as collateral. This is in contrast to traditional loans, which are typically based on the borrower's creditworthiness and income. Because hard money loans are secured by an asset, they may be easier to obtain than traditional loans for borrowers who have poor credit or a limited credit history.

Another key characteristic of hard money loans is that they generally have higher interest rates than traditional loans. This is because hard money loans are considered to be higher risk than traditional loans, due to the fact that they are not backed by a borrower's creditworthiness but rather by the value of the collateral. Additionally, hard money loans may have higher fees and closing costs than traditional loans.

Hard money loans are often used in real estate transactions because they can be obtained quickly and because they do not have the same strict underwriting guidelines as traditional loans. However, they are generally more expensive than traditional loans and are not suitable for long-term financing.