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Hard money loans are usually funded by individuals or private investment companies, not banks. These lenders offer loans based on their own guidelines with the home being purchased used as collateral to secure the loan.

Real estate investors prefer hard money financing over traditional or bank financing for a multitude of reasons. A few main factors are the quick close and less contingencies on financing. This can be an extremely powerful negotiating tool when purchasing investment real estate.

To qualify, a borrower will need to determine the purpose of loan - consumer (owner occupied and second homes) or for business purposes (investment, rental). Once a mortgage application is complete, the file can be underwritten for risk by providing financial documentation, a title report, and a property appraisal.

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Because hard money loans are riskier ventures than a traditional loan, interest rates and fees are typically higher then other mortgage options. However, for most people who need a hard money loan, this is a welcome trade off for having quick access to funding as most of the homes are held for relatively short periods of time before being sold again.

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