Hard money lending is a form of short-term financing in which a loan is secured by real estate. Unlike traditional bank loans, hard money loans are typically provided by private individuals or specialized lending firms rather than conventional financial institutions. The distinguishing factor of hard money loans is that they are collateralized by the value of the property itself, making the borrower's creditworthiness less of a determining factor.

How Hard Money Loans Work

1. Collateral-Based Loans:
Hard money loans are asset-based, with the property used as collateral. The lender assesses the value of the property and determines the loan amount based on a percentage of that value, known as the loan-to-value (LTV) ratio. LTV ratios commonly range from 60% to 75%, though they can vary based on factors such as the property type, location, and the borrower's experience.

2. Short-Term Nature:
Hard money loans are short-term financial instruments, typically with loan terms ranging from six months to a few years. This short duration aligns with the often transient nature of real estate projects, allowing borrowers to secure quick financing with the intention of repaying the loan through the sale or refinancing of the property.

3. Speedy Approval Process:
One of the primary attractions of hard money lending is the speed at which loans can be processed and approved. Unlike traditional loans, which may involve a lengthy application and approval process, hard money lenders can often provide funding in a matter of days. This quick turnaround is especially advantageous for real estate investors looking to seize time-sensitive opportunities.