What is a hard money loan for dummies? (2024)

What is a hard money loan for dummies?

A “hard money loan” is a type of loan that is backed by a hard asset, usually real estate. Unlike traditional loans that rely on the creditworthiness of the borrower, hard money lenders consider the merits of the investment and use that as collateral.

What is an example of a hard money loan?

Here's how a typical hard money loan works: The borrower wants to purchase a fixer-upper for $100,000. The estimate for renovation costs is $30,000, and it's projected the rehabbed property can be sold for $180,000. In this example, the hard money lender will lend 70% of the home's projected value after repairs.

What is 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.

Why is it called a hard money loan?

Like a traditional or secured mortgage, a hard money loan is a secured loan guaranteed by the property it's being used to purchase. The “hard” part of “hard money” refers to the tangible asset that backs the value of the loan.

What is a hard money loan?

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 are the three types of hard money?

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.

What is the difference between hard money and private lending?

Hard money loans are much shorter-term (typically one to two years). Thus, requiring a more considerable minimum investment ($100k+). On the other hand, private lending can last up to five or even ten years, depending on your situation. Investors looking for private funding typically only need $500 in liquid assets.

What is an example of hard money points?

Points: What They are and How They are Used

For example, if you take out a $100,000 hard money loan with two points, you will have to pay $2,000 upfront in addition to the interest rate and other fees. These points are non-refundable and are usually paid at closing.

What are typical terms for hard money loan?

A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years.

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.

How do you use hard money in a sentence?

How to use hard money in a sentence. The gold bugs and hard money types hated him because they believed the vast expansion in the money supply would ignite inflation. Some instructors allegedly told students that they had access to lists of “hard money lenders.”

What is the difference between hard and soft money loans?

Soft loans are usually provided by governments to projects they think are worthwhile. The World Bank and other development institutions provide soft loans to developing countries. This contrasts with a hard loan, which has to be paid back in an agreed hard currency, usually of a country with a stable, robust economy.

What is the opposite of hard money?

Hard money is a monetary loan used for a specific purpose and with specific criteria for paying it back. Soft money is a monetary loan that's not intended for a specific use. There are typically more hard money lenders than soft money lenders.

Why is Bitcoin considered hard money?

Echoing Nelson's sentiments, Arnold offered a compelling comparison between bitcoin and gold. He underscored the similarities in their value propositions, noting that both are seen as "hard money" due to their scarcity and ability to hold value over time.

What is a private money lender?

Updated on March 19, 2023. Written by Mark Henricks. Private money lending occurs when a wealthy individual or private organization loans money to a person or company. Private money lending is common in real estate investment.

What is a conventional loan?

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).

What is a private lender?

What is a Private Lender? Private lenders are generally funded by investors, or by banks, or both. Private lenders are in the business of taking funds from private investors and making private business purpose loans with those funds.

Is hard money the same as cash?

No, a hard money loan cannot be considered as cash. Unlike cash offers, which involve using existing personal resources, a hard money loan involves borrowing funds from a lender. While both options involve financial transactions, they have different implications for the buyer/seller relationship in real estate deals.

What are hard money assets?

Real estate is most commonly used as collateral for a hard money loan, but other hard assets such as vehicles, equipment, machinery and precious metals could also secure the loan. In order to offer a fast closing time, hard money lenders typically don't look into your credit history.

What happens at the end of a hard money loan?

The bank will pay off the hard money loan and the investor will now be responsible for a long-term mortgage at substantially lower interest rates. The net proceeds from the rent they charge and this mortgage payment will mean cash in their pocket every month, all while building equity in their portfolio.

How do banks determine how much they can loan?

A maximum loan amount describes the total sum that one is authorized to borrow on a line of credit, credit card, personal loan, or mortgage. In determining an applicant's maximum loan amount, lenders consider debt-to-income ratio, credit score, credit history, and financial profile.

How does a bank determine how much to loan?

They'll also look at your assets and debts, your credit score and your employment history. From all of this, they'll determine how much they're willing to lend to you. However, the amount you may qualify to borrow isn't necessarily what you should borrow.

Is private money lending safe?

There are several risks associated with private money loans, both for the borrower and the lender. A borrower may fail to fully check out the lender. It's important to know where the money is coming from. Usually, it's from a few independent investors who are looking for an investment return.

What is the difference between hard cash and soft cash?

The major difference between the two types of clash detection lies in the extent of the detected interference: hard clash detects a physical collision between two model objects; soft clash alerts on an excessive proximity between two objects that could generate issues during execution/installation or maintenance.