Residential Hard Money
A residential hard money loan
is a kind of loan in which a borrower gets funds based on the value of a specific commercial or residential
real estate. The term hard money refers to the difficulties in acquiring a loan. Hard money loans offer high
interest rates and lower loan-to-value ratios, as there is no government institution that backs the lender.
The loans are given against the value of real estate collateral.
Residential hard money loans are loans given by private lenders on the basis of the value of the asset or
property as opposed to the traditional banking criteria of credit scores, tax returns, and income statements
of the borrower. Residential hard-money loans are temporary bridge loans that are provided for acquisitions,
refinancing, foreclosures and people who file for bankruptcy. The interest rates for these loans are high, but
it is cheaper than taking on a financial partner or filing for bankruptcy.
In general, hard money loans offer interest rates and points that are 50-100% higher than traditional bank
loans. This has led to the impression that they are tough to repay. However, hard money loans are considered to
be beneficial for people looking for sources to help them get loans, for example, to renovate residential
property before selling or renting it.
The hard money lenders usually consider income-producing properties such as apartments, retail or shopping
centers, industrial, office buildings, hotels, motels, medical institutions, and restaurants. They also provide
loans for non-income producing activities such as land acquisition, development and construction, bank workouts,
foreclosures and bankruptcies.
Most private investors look for a safe and secure investment with a return that is better than what they will
receive from the bank. As residential hard money loans are secured by a property with usually 30% - 50% equity,
the investor is well protected and receives the benefit of the higher interest rate return.
