What is a "hard money loan"?

A "hard money loan" is best defined as a short-term loan secured by real estate, typically used by investors and subject to higher interest rates. This type of loan is primarily used when quick access to funds is needed, often for purchasing or renovating properties. The main distinguishing feature of hard money loans is that they are asset-based; lenders focus more on the value of the collateral rather than the borrower's creditworthiness.

Investors often prefer hard money loans because they can be processed quickly, allowing them to seize investment opportunities in competitive markets. The higher interest rates reflect the increased risk that lenders take on, as they are often dealing with borrowers who may not qualify for traditional financing or who require immediate funding for time-sensitive transactions.

In contrast, traditional loans usually have lower interest rates and longer repayment terms, are not primarily based on the property value, and involve more comprehensive underwriting processes, making the hard money loan option more appealing for certain real estate investment scenarios.