A hard money loan is a short-term loan from a private lender, secured by the property you're buying. Instead of focusing on your tax returns and debt ratios, the lender looks mainly at the deal: what the property costs, what it needs, and what it will be worth when the work is done.
How it works
Most hard money loans run 6 to 12 months with interest-only payments. The lender funds part of the purchase and, often, the repairs. You repay the loan when you sell the property or refinance into long-term financing.
When it makes sense
- Speed matters. A distressed property or an auction won't wait 45 days for a bank.
- The property needs work. Banks rarely lend on homes that aren't move-in ready.
- You want to keep your cash working. Leverage lets you take on more than one project at a time.
What it costs
Hard money costs more than a bank loan. Expect an origination fee, closing costs, and a higher interest rate. On a short project the speed and certainty usually pay for themselves, as long as your numbers work with the full cost of the loan included.