What are "hard money lenders"?

Hard money lenders are typically private individuals or companies that provide short-term loans secured by real estate. These loans are often used by real estate investors who need quick access to capital, as hard money lending processes can be faster and less restrictive than traditional lending methods.

The interest rates on these loans are generally higher because they are based on the property's value rather than the borrower's creditworthiness. This means that hard money lenders calculate their risk based on the real estate itself, and as a result, they can provide loans more quickly and with fewer bureaucratic hurdles.

In contrast, government-backed financial institutions focus on providing long-term loans with lower interest rates, often to individuals with good credit, while traditional banks primarily offer mortgages that require more documentation and longer approval processes. Some investment firms may focus on equity financing, which entails investing directly in an asset rather than lending money secured by it. This differentiates hard money lenders, whose primary function is to offer rapid, secured financing solutions for real estate investments.