What is a hard money loan?

A hard money loan is best defined as a short-term loan secured by real estate assets. This type of financing is typically provided by private investors or companies rather than traditional financial institutions. The key characteristic of hard money loans is that they rely on the value of the property being used as collateral, rather than the borrower's creditworthiness. This makes hard money loans an attractive option for those who may have difficulty securing loans through conventional channels, such as individuals looking to quickly purchase property for investment purposes or for the rehabilitation of distressed properties.

The nature of a hard money loan allows for faster funding compared to traditional loans, often closing in days instead of weeks. Due to their short-term nature, these loans usually come with higher interest rates and are expected to be repaid quickly, often within a year or two. This contrasts with long-term loans or government-backed options, which have different financing structures and qualifications.