Basics

• Hard money lenders do not have the same elaborate loan approval processes and requirements of mortgage lenders. Obtaining a hard money loan is usually more efficient, but interest rates are significantly higher because of increased risk for the lender.
  
  

Lender Risks

• Lender risks are much higher with hard money loans because of the expedited lending process. Approval can take ten days or less. Defaults are much higher than with conventional loans, which prompts the higher interest associated with hard money loans. Some hard money borrowers cannot obtain conventional loans because of bad credit.
  
  

Loan Requirements

• Real estate investors called "flippers" typically use hard money. These investors buy homes at discounts, obtain hard money quickly, and hope to fix up and sell the home fast to avoid high interest charges. Hard money lenders often have minimum loan requirements. They also routinely lend a maximum of 65 percent of real estate value, causing some borrowers to add other real estate as collateral to obtain more funds.