What is a Hard Money Loan?

A hard money loan is a short-term, real estate-backed loan used to acquire investment properties. These loans are not for every situation. But in the right situation, they can be very profitable.

The best way to ensure you’re making sound moves with your real estate investment strategies is to get educated. At Catalyst Funding, we want to ensure you understand all the facts behind how a hard money loan works.

Who is the perfect candidate for a hard money loan?

  • Property investors
  • Fix and flippers
  • Buy and hold real estate investors
  • Those looking to quickly flip a non-owner occupied property for profit

Why use a hard money loan?

It gives you cash fast. You can quickly and easily purchase a fix and flip property, foreclosure or distressed property that’s an investment opportunity you don’t want to lose. Also, you won’t be able to secure a real estate wholesale deal without a hard money loan or cash offer.

money bag

How does a hard money loan work?

  1. Get preapproved. You want leverage to close the best deals fast.
  2. Secure the property and loan. Hard money loans have 6-12-month terms. See our hard money loan rates.
  3. Renovate or rehab the property as needed.
  4. Sell it and pay back the loan.
  5. Keep the profit.
  6. Or, turn the property into a rental as a long-term investment. Refinance the hard money loan with conventional financing.

Whether you want financing for a quick sale or major renovations, hard money loans are typically the easiest and fastest way to secure financing as a real estate investor.

Advantages of a Hard Money Loan

  • Receive money fast, usually within days
  • Easy and convenient
  • No minimum FICO score for eligibility
  • Leverages your cash for more investment opportunities
  • Open to properties in disrepair
  • Perfect for property flips, renovations, rehabs, rentals, quick investments
  • No pre-payment penalties

Why use a hard money loan over conventional lending?

Speed: Hard money lenders are more interested in the value of your property and your property investment. Therefore, they don’t need to go through your loan application and financial history with a fine-toothed comb. This is what makes hard money loans perfect for the investor focused on collateral. Once you have a relationship with a lender, the process can move very quickly and smoothly, giving you an edge on closing deals fast.

Flexibility: Hard money loans are often more flexible than traditional loans. Lenders evaluate each situation individually based on the investment opportunity. Depending on the situation, they may be able to make adjustments to fit what works for you. This is unlikely to happen with a traditional loan and complex underwriting process.

Fast Profit: Hard money loans are designed to be short-term loans. They get you cash fast, so you can quickly jump on an investment opportunity and make a profit. Even with a higher interest rate than a traditional loan, a hard money loan can equal a higher profit as the term is shorter and it opens the door for other investment opportunities.

Opportunity: Most properties in poor condition will not qualify for conventional financing, and oftentimes, the best opportunities come from the ugliest houses. Also, property wholesalers will only sell to those with either a cash offer or an approved hard money loan.

Tip: At Catalyst, our hard money loans have no prepayment penalty, so if you pay the loan off in a month, you only pay one month of interest.

"We recently used Catalyst Funding as our Hard Money Lender for a rehab project. The overall experience was excellent. Their lending application process was relatively easy, they provided all relevant information regarding the loan and fees, the loan was provided in a timely manner, and the repair draw process was also easy. Look forward to working with them again." -Tim DeLeon, Market Edge Homes

At Catalyst, we are experienced hard money lenders and active real estate investors ourselves. An advantage to working with a hard money lender who is also an investor is the expertise and connections he or she can provide within the real estate market. Get preapproved for a hard money loan today.