Is a hard money loan the same as cash? (2024)

Is a hard money loan the same as cash?

While hard money loans are not cash, they are often considered cash equivalent because they differ from traditional loans. A bank will provide you with a mortgage based on the market value of the acquired property (i.e., the purchase price).

What is a hard money loan also known as?

Hard money loans are also referred to as bridge loans and can be used to help finance one house while preparing to sell another. Traditional lenders don't issue hard money loans. You get them from individual investors or private companies.

What is a hard money loan for dummies?

Hard money loans are secured by the property they're tied to instead of the borrower's credit and financial profile. The loan is typically based on the property's value and comes with a short repayment term, usually less than a year.

What is an example of hard money?

Another way to describe hard money is actual physical currency. In such a case, hard money would represent coins made out of precious resources, such as platinum, silver, and gold.

Does a loan count as cash?

Cash implies a certain amount of money that you already have in your possession. In contrast, a loan means that you're using borrowed funds because you either don't have cash or choose not to use it. Hard money loan is not cash, but there are instances when it's considered its equivalent.

Why is hard money considered cash?

Hard money loans are considered "cash" in instances where the property seller mandates the buyer pay with cash rather than with bank financing.

What are the risks of hard money lending?

Risks of Hard Money Loans

Among them are: Interest rates are typically higher. Hard money lenders typically charge a higher interest rate because they're assuming more risk than a traditional lender would. They may require a higher down payment than a traditional loan would.

How does hard money loan work?

A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of "last resort" or short-term bridge loans. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies and not banks.

What happens if you default on a hard money loan?

If you default on the hard money loan at any point, the lender takes the property and sells it, using the funds to pay off the outstanding loan. The lender would only need to sell the home for 40% – 50% of its original sales price to make its money back.

How is a hard money loan calculated?

Hard Money Loan Amounts

The hard money lender determines how much they can offer to a borrower by using the loan to value (LTV) ratio. The LTV metric is calculated as the total loan amount divided by the value of the property used to back the loan.

Can you have more than one hard money loan?

Yes, our hard money loan programs are ideal for investors who own too many investment properties for a traditional lender to finance them. We do not have a limit on the number of mortgage loans you can have out.

What's the meaning of hard money?

Hard money is a currency made of or directly backed by a valuable commodity such as gold. Historically, hard money was highly regarded for its usefulness as money to mediate the exchange of goods, store value, and conduct profit-and-loss accounting.

What are the three types of hard money?

What is a soft money loan?

A soft loan is a loan with no interest or a below-market rate of interest. Also known as "soft financing" or "concessional funding," soft loans have lenient terms, such as extended grace periods in which only interest or service charges are due, and interest holidays.

What is soft cash?

Soft money (sometimes called non-federal money) means contributions made outside the limits and prohibitions of federal law. This means that it is direct corporate and union contributions and large individual and PAC contributions.

Which is better cash or loan?

Financing can help in emergencies, paying for large purchases, building your credit score, and freeing up money to invest. Cash is still king when it comes to buying non-essentials, keeping track of your monthly budget, and staying out of debt.

Is personal loan same as cash?

“Same as cash” doesn't mean no interest. With same-as-cash financing, you may not pay interest for a set period, but interest still accrues on your balance. If you don't repay it within a specific time frame, you could end up paying back interest on your total monthly balances during the deferred interest period.

Is loan better than cash?

However, it is also important to note that if you don't have a credit history, a home loan can help you build your credit history. On the other hand, cash payments, do not contribute to your credit rating in any way or require you to have a credit history.

Why is it called hard money lending?

Private investors and groups of investors typically operate as hard money lenders. It's called a “hard money” loan because it's harder to acquire and pay back than its soft money counterpart.

Is hard money lending a good investment?

Hard money loans are a good fit for wealthy investors who need to get funding for an investment property quickly, without any of the red tape that goes along with bank financing. When evaluating hard money lenders, pay close attention to the fees, interest rates, and loan terms.

How much hard cash should you have?

How much do you need? Everybody has a different opinion. Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000.

Do hard money loans hurt credit?

Most hard money loans, such as fix and flip loans, will not show up on your credit report. However, you should keep in mind that this is not always the case, and you should discuss the specifics of your loan with your lender. Either way, the loan will typically appear on a background check or asset search.

What credit score do you need for a hard money loan?

In some cases, hard money lenders require inexperienced investors to have a credit score of at least 620, as well as additional collateral, such as your home or another valuable asset. A bank loan will consider your credit history, current credit score, and employment plus income information.

Does a hard money loans show up on credit report?

While a hard money loan will not appear on your credit report, and your credit score is typically of little concern, the lender will perform a background check to ascertain whether you are at risk for defaulting on the loan.

What is the average interest rate on a hard money loan?

Rates for hard money loans can vary, but the average interest rate is generally between 10% and 18%, which is significantly higher than a conventional loan. On top of that, other costs are often associated with these types of loans, including points and origination fees ranging from 2% to 6%.