Hard money loans are secured by real assets and not based on financial history. The collateral is typically the property that you are buying, but you can also use retirement accounts and other real estate properties as well.
Hard money loans are a way to borrow money quickly and without having to go through traditional lenders. Private lenders often offer this loan, which is more flexible than traditional bank loans.
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What is a hard money loan?
A hard money lender is more interested than a traditional lender in an asset than the borrower who is borrowing against it. As you might expect, a Hard Money Loan is typically a lot more expensive than a regular bank loan.
Banks usually have strict criteria regarding conventional mortgages, particularly mortgages for investment properties. This is especially true if you have more than 10 properties under your name. You are no longer eligible to receive a Fannie Mae-backed mortgage.
Banks are not interested in loans for owner-occupied properties. Although most real estate investors won't make much money from cookie-cutter properties they own, hard money can still be very useful.
Hard money can be lent for residential and investment properties, but hard money lenders are able to lend on multifamily apartments and commercial office buildings, as well as industrial property and retail. They also have the ability to lend on non-real estate investments, such as equipment purchases.
Although they may seem similar at first, private and hard money loans are very different.