If you are looking for alternatives to a traditional mortgage, you may be asking what is a hard money loan and how does it work? This kind of loan might be right for you if a conventional mortgage is too difficult to get or takes too long for your needs.

What Is a Hard Money Loan?

A hard money loan is an option for homeowners who need to get money quickly, using an asset to guarantee the loan. Unlike a mortgage, a hard money loan can be processed and paid out in a matter of days. The process of getting a hard money loan is less intense than the mortgage process, which is known to be very demanding. This is because hard money lenders make a decision based on the value of the property being offered as collateral rather than your personal finances and credit history.

By taking a hard money loan, you are using your home or another high-value asset to guarantee that the lender will get their payments on time. If for some reason you are unable to make your payments on time, the lender can take possession of the home and sell it to recoup their losses.

How Do Hard Money Loans Differ From Traditional Mortgages?

Since the lender is taking on a significant amount of risk in a hard money loan situation, you can expect them to charge a much higher interest rate than a traditional bank would on a mortgage. Another reason the interest rate is higher is due to the much shorter term of a hard money loan, which is typically only a few years.

Who Can Benefit From These Kinds of Loans?

Hard money loans can be beneficial for those who are unable to qualify for a traditional mortgage. Some applicants are rejected by traditional banks due to having a low credit score, not making enough income to meet the required income to debt ratio, not holding their current job for long enough, or lack of established credit history.

With a better understanding of the answer to the question “what is a hard money loan”, you can make an informed decision on whether this kind of loan is right for your situation.