Hard money lenders do pretty much what their name implies: they loan you money to purchase real estate. They’re typically private businesses or individuals and hard money loans exist outside of the normal world of conventional lending; you can’t walk into a bank or a branch office to check on their rates for hard money loans.
Hard money loans usually have very high-interest rates (15%-20%+) and are secured by the value of the property as collateral. This means that credit scores are often unimportant and ignored by many hard money lenders, as the loan is backed by the property itself if a borrower defaults on the loan.
Hard money lenders get away with charging very high-interest rates because they’re often the lender of last resort for people looking for financing to purchase a home due to poor credit scores and/or recent bankruptcies and foreclosures.
Hard money loans are also used by investors and flippers in many cases as the rehab costs can often be rolled into the hard money loan so that rehabbers don’t have to pay repair costs out of pocket. Hard money loans also typically aren’t regulated to the same extent as conventional loans so they can be closed much more quickly.
>> Read more: How long does it take to buy a house