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Hard Money Loan
A short-term, asset-based loan from a private lender, typically used for fix-and-flip or bridge financing.
Definition
A hard money loan is a short-term, asset-based loan provided by private lenders rather than banks. The loan is secured by the property itself, and approval is based primarily on the property's value rather than the borrower's creditworthiness. Hard money loans typically carry interest rates of 10-15%, 2-5 points in origination fees, and terms of 6-24 months. They are commonly used for fix-and-flip projects, bridge financing between purchases, and situations requiring fast closing. The speed of funding (often within days) and flexible qualification requirements are the primary advantages. Investors typically refinance out of hard money loans into long-term financing like DSCR loans once the property is stabilized.
How This Relates to DSCR Loans
Hard money loans are often the "before" to a DSCR loan's "after." Investors use hard money for acquisition and rehab, then refinance into a DSCR loan for long-term hold.
Related Terms
Fix and Flip
Buying a property below market value, renovating it, and selling it for a profit.
BRRRR Strategy
Buy, Rehab, Rent, Refinance, Repeat — a strategy for recycling capital to build a rental portfolio.
Loan-to-Cost
The ratio of the loan amount to the total project cost including acquisition and renovation.
After Repair Value (ARV)
The estimated market value of a property after planned renovations and improvements are completed.
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