Hard Money Loan Definition

Hard money loans are loans where the real estate is used as the collateral.

The lender assumes a lien on the property and if the borrower can't repay the loan, the lender can take the property. The lender will then sell the property to satisfy the loan.

The reason why these loans are Hard is because with these types of loans, interest rates are higher and the LTVs (loan-to-value ratios) are lower. They are considered riskier to the lenders and the lender is not secured/guaranteed by a government institution (unlike mortgages given by banks).

These loans are usually short term and are used as a type of bridge loan. As with other collateralized loans, the size, rate, and length of the loan are determined by the borrower’s equity in the asset, the volatility of the asset and marketplace, and the financial standing of the borrower.

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