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Loan, Real Estate

Hard Money Loan Terms & Repayment Options

When looking to expand real estate investments, hard money loans are a great tool to secure funding. Whether looking to buy a primary residence, secure a commercial space, or flip and sell for profit, knowing how to utilize hard money can be the key to success. Hard money loans provide a competitive edge in a challenging market and can be the differentiating factor between securing the property of your dreams or walking. Borrowers can use hard money loans to their advantage, but it takes an understanding of how to utilize this particular loan form in order to be successful. Below, we will walk through the characteristics of hard money, and the aspects you can put to work for your real estate goals.


Hard Money, What Is It?

Hard money loans are different from traditional bank loans. Learning the ins and outs of this loan form can ensure you are best equipped to use hard money loans to your advantage.

  • Property as Collateral: Unlike traditional loans that rely solely on your financial background, hard money loans use the property itself as collateral for the loan. If the borrower defaults, the lender has the power to claim and sell the property.
  • Higher Interest Rates: Lenders take a big risk with hard money loans, so you can expect higher interest rates. Whether using the money for renovations, or as a first-time borrower, since financial history is not the primary qualifier, the loans carry higher interest. However, it is possible to find competitive interest rates in comparison to conventional loan forms (JMJ’s interest rates are competitive to current traditional rates).
  • Shorter Repayment Period: In comparison to a traditional loan, which normally has a repayment period of 30 years, expect a much shorter period with a hard money loan. Hard money loans typically operate on a 6 month-2 year cycle, a much quicker turnaround than conventional loans.
  • Loan-to-Value Ratio: Your loan to value ratio (LTV) is the loan amount divided by the value of the property. This determines how large your loan can be, with normal ranges from 65-70% of the property’s value. For home flippers, this amount can be based on the value after repairs (ARV).

Benefits of Hard Money Loans

Hard money loans have different advantages over conventional loans. Here are a few reasons to look into hard money loans as options:


    1. Competitive Markets: It is a competitive buyers market, and anything you can use as an advantage can be the difference between securing a property or walking away. Hard money loans provide the borrower with cash to purchase the property, which is a sale for the realtor. In certain cases, hard money also allows access to certain properties that may not be available otherwise.
  • Open Cash Flow: A borrower can put hard money to many different uses, including the cost of renovations and repairs. Since hard money loans are often geared towards distressed properties, investors expect borrowers to put it towards whatever financial needs the property incurs.
  • Positive Credit: If you have a successful repayment plan, you can start building positive credit. This will open doors to future investments, and possibly other loan forms as well.


Flexibility: Hard Money’s Advantage


One of the greatest aspects of hard money is the flexibility of loan terms. Unlike traditional loans, which have a strict underwriting process, borrowers can usually work with lenders to collaborate on terms that fit their individual needs. Since it is a short-term financing option, you can expect the repayment period to be within the 6 to 24 month range. This opens up opportunities to secure future loans and diversify your real estate portfolio. When thinking of utilizing a hard money loan, the best thing to do is have a seasoned lending expert that can ensure flexible terms for the loan. JMJ’s 28 years of experience lends itself to being a great financial partner in the real estate investment world.

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