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Hard money loans are secured by the property they're tied to rather than the borrowers credit and financial profile. The loan is typically based on the property's value and comes with a short repayment term, usually less than a year.

Applying for and closing on a hard money loan is often much faster than a conventional mortgage and the repayment terms are significantly shorter than the usual 15- or 30-year timelines. A borrower will usually repay a hard money loan within 6 to 12 months, though some terms may be longer or extended. Hard money loan interest rates tend to be much higher than those of a conventional mortgage. A hard money lender will typically lend up to 80% of the property's value requiring the borrower to put down 20% or more while a conventional mortgage can be obtained with 3-5% down depending on the program. Unlike a conventional mortgage which is backed by the borrowers creditworthiness, hard money loans are secured by the physical property and its assessed value in the form of equity. If a borrower defaults on a hard money loan, you'll generally lose the asset you put down as collateral, rather than than working out a repayment plan.

Pros Flexible loan terms: Hard money lenders tend to be flexible when negotiating loan terms since they're not subject to the same regulations as conventional mortgage lenders. Quick capital: Compared to the sluggish pace of conventional mortgage underwriting, hard money loans can be processed in as little as 1 day. Credit score/history a non-factor: While a conventional mortgage underwriting focuses on borrower income and credit history, hard money lenders extend loans based on collateral, such as a house or building. Hard money lenders care more about the estimated market value of the property after the planned renovations are completed and less about a borrowers financial history. Cons Higher costs: The interest rates for hard money loans can be several percentage points higher than that of a convention mortgage usually 10-12%. Larger downpayment: While a conventional mortgage can be obtained with a little as 3% down, a hard money requires much more upfront capital from the borrower generally 20-25% down. Regulations: Hard money lenders are similar to payday lenders, in that they're subject to little oversight or regulation, if any.

The types of borrowers who tend to utilize hard money loans included real estate investors, borrowers who cannot qualify for conventional loans, and less commonly, homeowners facing foreclosure.

Hard money lending is a form of lending that involves securing a loan with a high-value collateral, usually the property of a borrower. Hard money loans are short-term and are typically used in real estate transactions by real estate investors who renovate properties to sell, as quick access to capital is often a requirement.