Hard Money:  Just sounds bad.  It’s not the money that you make from digging ditches or plowing a field…..that is literally hard money made the hard way.   

 These days, with all the “house flippers” and get rich quick ideas involving real estate bouncing around on TV, radio and browser pop up ads, the words HARD MONEY are filtering into everyday language.  So what is it?  Well, for those trying to start a career in the real estate industry or those who want or need to add a little leverage to their projects, may often hear yet not understand the words hard money.   So,  MY definition of ‘Hard Money Loan’  is: A loan of “last resort” or a “short-term bridge loan” or “sub, sub-prime loan”  that is backed by the value of the underlying property or other asset, for which  the “hard money” will be used to purchase.  These loans are generally sought out by borrowers that may not have good or enough credit for a time sensitive opportunity requiring funds.  Hard money loans are not backed by the credit worthiness of the borrower but by the property or asset itself.  Meaning the asset itself is used as the only protection against default by the borrower.  So, because of this,  hard money loans have much lower loan-to-value (LTV) ratios than traditional loans.

Hard money loans carry interest rates even higher than traditional subprime loans. Since traditional lenders, such as banks, do not make hard money loans, hard money  lenders are sometimes private individuals that see value in this type of potentially risky venture. Hard money loans are used in turnaround situations, short-term financing for acquisitions, and by borrowers with poor credit but substantial equity in their property that for which they wish to stave off foreclosure.  Hard money is also used to take advantage of opportunities that require quick action and or quick closings and settlement.

Chris Bounds Austin Texas, reminds borrowers that hard Money Lenders (HMLs) are not banks and do not offer bank terms.  This is a big deal and borrows should read AND understand the documents they will sign for a hard money loan.  At times, an HML may also want a “piece of the deal” or an “equity”  interest in the project or property….. Meaning that not only will the borrower pay above market interest rates, but may also be asked to pay the lender more money when the property being acquired is sold or pay the lender a piece of ongoing revenue streams produced by the asset or project being funded.   Do your homework.

Chris Bounds Austin Texas