Hard Money Loan
A short-term asset-based loan secured by real estate, funded by private investors at higher rates.
What is Hard Money Loan?
A hard money loan is a short-term, asset-based loan secured primarily by real estate collateral rather than the borrower's creditworthiness or income. Hard money loans are provided by private investors or non-bank lenders rather than traditional financial institutions, enabling faster approval and funding—often within days rather than the weeks required for conventional financing. Because lenders focus on the collateral's value rather than borrower qualifications, hard money loans can be obtained by borrowers who cannot qualify for conventional credit. In exchange for this flexibility and speed, borrowers pay significantly higher interest rates (typically 8–15%), large origination fees (2–5 points), and short loan terms (6–24 months). Hard money loans are most commonly used by real estate investors for fix-and-flip projects, bridge financing, and acquisitions where time is critical.
Example
A real estate investor purchases a distressed property at auction for $180,000 and funds it with a 12-month hard money loan at 12% interest and 3 origination points. After spending $40,000 on renovations, the investor sells the property for $280,000, repays the lender, and pockets the profit — a strategy made possible by the lender's fast approval without conventional income verification.
Source: Investopedia — Hard Money Loan