Hard Money Loans

Borrow Money Based on Current Value of a Commercial Property

Hard money loans pertain to a certain kind of financing where a borrower receives funds based on the value of a commercial real estate parcel. These loans usually come with a much higher interest rate than a conventional commercial or residential mortgage loan. They are rarely issued by a commercial bank.

Hard money loan basics

Hard money loans are usually obtained by property owners seeking capital against the value of their asset.

These loans are based on the quick sale value of the real estate in question. Lenders typically structure hard money loans based on a percentage of this quick sale value. This is commonly referred to as the LTV (loan-to-value) ratio. The LTV often falls somewhere between 60 and 70 percent of the property's value. The "value" part of the LTV is dtermined by the price that the property could be expected to sell in short time should the loan default.

This is one example of how a hard money loan might be structured by a lender:

60% hard money loan

20% borrower contribution such as cash or other collateral

25% additional loan(s)

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Home Buying Vocabulary

Title

The evidence of the right to or ownership in property.

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Frequently Asked Question

How do equity loans and home equity lines of credit differ?

Answer:
A home equity loan is a one-time lump sum being borrowed based on the equity of your home. A home equity line of credit, or HELOC, involves a credit line with a limit that is based on your equity (which you can draw out of and pay into, such as with a credit card).

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