Hard money loans are short-term lending instruments which real estate investors can use to finance an investment project. These loan tools are often used for house flippers or real estate developers whose objective is to renovate or develop a property, then sell it for a profit. Hard money loans are issued by private lenders rather than traditional financial institutions such as banks.
Unlike traditional bank loans, the ability to obtain hard money financing isn’t determined by the borrower’s credit worthiness. Instead, hard money lenders use the value of the property itself in determining whether to make the loan. Specifically, we focus on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovations or development phase is complete.
Hard money loans are convenient and generally come with a higher interest rate and loan origination fees than a traditional lending institution. The purpose of hard money lending loans is to allow a real estate investor to get an investment property to market as quickly as possible. As a result, these loans feature shorter repayment terms.