What is a hard money loan?

A hard money loan is characterized as a short-term loan that is secured by real estate. Such loans are typically used by investors looking for quick financing options, particularly for properties that may not qualify for traditional financing due to their condition or status.

The underlying principle of a hard money loan is that the asset itself – the real estate – serves as collateral, which makes this type of financing more accessible for borrowers who may face challenges with conventional lenders. Hard money loans can provide access to capital in situations that require a speedy transaction, such as flipping houses or urgent funding for an investment deal.

While other options may involve aspects of lending or specific types of properties, they do not accurately describe the nature of a hard money loan. For example, loans guaranteed by government funds refer instead to secured loans that are backed by agencies, often associated with long-term lending. A long-term mortgage with low interest typically suggests the opposite of the short-term factor associated with hard money loans, and a loan used exclusively for commercial properties narrows the scope too much, as hard money loans can also be utilized for residential properties.