Hard Money Defined

The term " Hard Money" as it is referred to in the Real Estate and Lending industry, has developed through the years to refer to non-conventional or non-traditional real estate loans.

The Hard Money industry suffered severe setbacks during the Real Estate crashes of the early 1980's and early 1990's, due to lenders overestimating and funding properties at well over market value. Since that time lower Loan To Value ( LTV) rates have been the norm for Hard Money Lenders in order to protect themselves against the market's volatility.

Today, most Hard Money Loans are funded by private money sources or administered funds that come from outside of the main stream source such as; banks, S& L's, Pension funds, Insurance Company Funds, or Securitization polls that end up at Wall Street.

Hard Money Loans are used primarily when Real Estate Investors do not meet minimum loan requirements, or when the Real Estate Investor is looking for speed and convenience.

Most Commercial Hard Money lenders will not lend beyond 65% of the property value. When there is not sufficient equity in the property to meet the lenders LTV, the borrower may pledge other real estate and cross collateralize the loan ; cross collateralization allows loans to be made at higher amount when the borrower has more than one property to be pledged.

Property values will usually be determined by the lender, who may use a conservative approach to valuation of the property. Typically, they may determine the value based on the ability to sell it within thirty days or less.

Real Estate Investors often borrow Hard Money to have a competitive edge in the market, as they are not constrained by the traditional lender requirements for credit reports and verification of employment or income. Fast funding is a very significant factor in completing a profitable transaction for most borrowers who make a living investing in Real Estate.