A hard money loan is a loan that is primarily secured by the equity in a hard asset, most commonly real estate. Also called an asset-based loan, it prioritizes the property value over borrower creditworthiness, enabling faster underwriting and quicker funding.
Lenders focus on collateral (typically real estate) as the repayment source. Minimal borrower underwriting is required. These loans have shorter durations, typically 2 years or less, with higher interest rates (9-15% annually) due to increased lender risk. They require substantial equity, usually at least 35% minimum.
Private lenders — individuals or lending companies — fund these loans rather than banks. Borrowers work directly with lenders or through loan originators. The lending process is faster than conventional financing, often completed within 2-7 business days.
Hard money loans suit real estate investors needing quick capital for fix-and-flip projects, bridge financing, property acquisitions, or rehabilitation. They're beneficial for purchasing foreclosures or properties requiring cash offers or expedited closings.
These loans aren't designed for primary residence financing or long-term borrowing. They fill a gap where conventional lenders won't operate, enabling investors to access capital quickly when traditional lending is unavailable.