Hard Money Lending
Traditional Private Lending
(Also known as "Hard Money" Lending)
A "hard money" loan is a specific type of financing in which a borrower receives funds based on the value of a specific parcel of real estate or collateral.
Hard money loans are typically issued at much higher interest rates than conventional residential property loans and are almost never issued by a commercial bank or other deposit institution.
Hard money is similar to a bridge loan which usually has similar criteria for lending as well as cost to the borrower. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and not yet qualifying for traditional financing.
Hard money often refers to not only an asset-based loan with a high interest rate, but can signify a distressed financial situation such as arrears on the existing mortgage or bankruptcy and foreclosure proceedings are occurring.
Hard money loans are typically collateralized against the quick-sale value of the property for which the loan is made. Most hard money lenders fund in the first-lien position.
Hard money lenders typically structure loans based on a percentage of the purchase price or LTC (loan to cost) as well as the LTV (loan to value) with value being based on the quick-sale value of the collateral property.
The maximum loan to value ratios are typically the lower of a 70% - 80% LTC or 60% - 70% LTV.
Legal & Regulatory Issues
From inception, the hard money industry has largely been unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money in certain situations.