Hard Money Loans Definition
For the purpose of financing your investment properties there are two options- Hard Money & Soft Money.
Soft Money- is simply money that is borrowed from banks and other lending institutions.
Hard Money- is money from investors to fund your investment property. Hard Money is normally sort term. Hard Money is normally used when the property needs some repairs and rehab. With Hard Money you can finance the expense for repairs as a part of your loan. The Rules- since the money is coming from private investors they can make their own rules, unlike soft money above where the rules can be more restrictive. For this reason you can obtain money and eventually additional money based upon your track record and performance with a particular Hard Money Lender.
Normally Hard Money lenders will loan 65 of the ARV. In the case of Hard Money Lending they would escrow your repair money and in some instances they would escrow your first couple of payments. Draws- The way the money for repairs is disbursed is by using draws. The Hard Money Lender would physically inspect the property to ensure the work was actually done and disburse the money accordingly. If the property does need some work this is called deferred maintenance. Traditionally if this number is over $2,000 you would not be able to receive a Soft Money Loan. The other reason investors use Hard Money Loans is so they do not need to use any of their money or to personally fund their project. As you can see a good portion of the properties an investor buys would be financed with a Hard Money Loan.
Summarized from “What are Hard Money Loans?” by Miles Loss ( Licensed Mortgage Broker)
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