{"id":139396,"date":"2025-03-17T10:44:03","date_gmt":"2025-03-17T10:44:03","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/real-estate\/an-introduction-to-hard-money-loans\/"},"modified":"2025-03-17T10:44:03","modified_gmt":"2025-03-17T10:44:03","slug":"an-introduction-to-hard-money-loans","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=139396","title":{"rendered":"An Introduction to Hard Money Loans"},"content":{"rendered":"


\n<\/p>\n

\n

Understanding how to finance real estate deals is an
\nessential part of any real estate investor\u2019s education. There are many
\nfinancing options available to investors who want to buy rental properties;
\nhowever, savvy investors know that utilizing leverage via the correct financing
\nvehicle is key to increasing return on investment.<\/p>\n

What is Leverage?<\/strong><\/p>\n

Leverage is the money borrowed to finance the purchase of an
\ninvestment property. In other words, someone else\u2019s money is being used to
\nmaximize (or leverage) your ability to buy investment properties while using less
\nof your own money. <\/p>\n

Conforming Mortgages
\n\u2013 Leverage to Purchase a Primary Residence Versus Rental Properties<\/strong><\/p>\n

If you have a mortgage on your home, then you used leverage
\nto purchase it. Typically, conforming mortgage lenders will lend up to 80% of a
\nproperty\u2019s purchase price<\/em> thus
\nrequiring a 20% down payment from the buyer. A
\nconforming mortgage is the best way to purchase a primary residence<\/em><\/strong> when
\nthe buyer has good credit, income history, and has time to go through the
\nlengthy approval\u00a0process required by a bank. <\/p>\n

A conforming
\nmortgage is not<\/em><\/strong>
\nthe best financing vehicle to use when purchasing a rental property for a
\nvariety of reasons. Conforming mortgages will have higher interest rates
\n(5-7%) on loans for rental properties, may require larger down payments, and
\nhave different approval requirements than owner-occupied properties. Furthermore,
\nyou cannot use a conventional mortgage to purchase a property with deferred
\nmaintenance because the underwriter will not approve the loan. Even then, the
\napproval process will be onerous. Conforming mortgage lenders will require proof that you can repay them and will
\nevaluate your credit score, your income, and your debt to income (DTI) ratio
\nbefore approving the loan. <\/p>\n

Hard Money Loans Maximize Leverage When
\nPurchasing Rental Properties<\/strong><\/p>\n

A hard money loan is a way
\nto secure financing for a rental property without using conventional mortgage
\nlenders such as banks or credit unions. Hard money loans are funded
\nby\u00a0private investors\u00a0(or a fund of investors). They are short-term, asset-based loans<\/strong> for
\nnon-owner occupied (rental) properties. This means that the rental property is
\nused to secure the loan. <\/p>\n

Real estate
\ninvestors typically buy properties with deferred maintenance. Therefore, the
\npurchase price is lower than the after repair value (ARV) of the property. The
\nARV is the estimated value of a property after all necessary repairs or major
\nrenovations have been finished and is based on sales of comparable nearby
\nproperties.<\/p>\n

In contrast to conforming
\nmortgage lenders, hard money lenders will lend
\nup to 65 \u2013 75% of the property\u2019s ARV <\/em>rather
\nthan 80% of the purchase price<\/em>. This
\nability to maximize leverage is the reason savvy real estate investors
\nprefer to obtain hard money loans when purchasing investment properties. Table 1<\/strong> provides a very basic
\nillustration of the difference in leverage between conforming mortgages and
\nhard money loans.<\/p>\n

Table 1:
\nComparison of Conforming and Hard Money Loans<\/strong><\/p>\n

<\/p>\n

Table 1 shows that a conforming mortgage lender will
\nonly lend $60,000, which is 80% of the $75,000 purchase price. The borrower
\n(real estate investor) will need to put down $15,000 to purchase the property.
\nThen, he or she will need to address the deferred maintenance (make
\nrepairs).\u00a0 If $15,000 is needed for
\nrepairs to the property, then the investor will be out of pocket an additional
\n$15,000. All in, the real estate investor will have $30,000<\/strong> of his or her money in the deal when financing the property
\nwith a conforming loan.<\/p>\n

In contrast, a hard money lender will lend $82,500, which is 75% of the
\n$110,000 ARV. This loan covers the $75,000 purchase price and<\/em> provides $7,500 to be kept in an escrow account for necessary
\nrepairs to the property. The assumption with hard money loans is that
\nthe borrower will improve the property to the standards of the after repair
\nvaluation. If the repairs cost $15,000, then the real estate investor only
\nneeds to use $7,500<\/strong> of his or her
\nown money with the other $7,500 coming from the escrow funded by the hard money
\nlender. The hard money loan keeps more cash in the investor\u2019s pocket than a conforming
\nloan.<\/p>\n

Hard Money Loan Terms<\/strong><\/p>\n

There are additional loan terms to consider when evaluating
\nhard money loans. There is greater risk on the part of the hard money lender because the amount of the lender\u2019s capital increases while
\nthe amount of the borrower\u2019s capital decreases. This increased risk causes the
\nhard money lender to charge a higher interest rate (7-14%) than that associated
\nwith a conforming mortgage. But, hard money loans have interest only payments
\nand are meant to be short-term loans (6-12 months). An investor should
\nrefinance into a conforming mortgage as soon as the property repairs are
\ncomplete and a tenant is in place.<\/p>\n

It\u2019s All About
\nLeverage<\/strong><\/p>\n

The example from Table
\n1<\/strong> above should clearly illustrate why it makes sense to use hard money
\nloans when purchasing long-term, buy-and-hold investment properties that have
\ndeferred maintenance. Using the example above, someone with $30,000 in savings
\ncould purchase four <\/em>rental houses
\nusing hard money loans. It\u2019s that simple. A hard money loan offers greater
\nleverage to the buyer. <\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"

Understanding how to finance real estate deals is an essential part of any real estate investor\u2019s education. There are many financing options available to investors who want to buy rental properties; however, savvy investors know that utilizing leverage via the correct financing vehicle is key to increasing return on investment. What is Leverage? Leverage is […]<\/p>\n","protected":false},"author":1,"featured_media":139397,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[99],"tags":[1338,14570,11404,832],"dealstore":[],"offerexpiration":[],"class_list":["post-139396","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate","tag-hard","tag-introduction","tag-loans","tag-money"],"yoast_head":"\nAn Introduction to Hard Money Loans - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=139396\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"An Introduction to Hard Money Loans - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"Understanding how to finance real estate deals is an essential part of any real estate investor\u2019s education. There are many financing options available to investors who want to buy rental properties; however, savvy investors know that utilizing leverage via the correct financing vehicle is key to increasing return on investment. What is Leverage? Leverage is […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fivemor.com\/?p=139396\" \/>\n<meta property=\"og:site_name\" content=\"Som2ny Network\" \/>\n<meta property=\"article:published_time\" content=\"2025-03-17T10:44:03+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/fivemor.com\/?p=139396#article\",\"isPartOf\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\/\/fivemor.com\/#\/schema\/person\/b85e3c3dc0e1daea076524dc8810c371\"},\"headline\":\"An Introduction to Hard Money Loans\",\"datePublished\":\"2025-03-17T10:44:03+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396\"},\"wordCount\":843,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/fivemor.com\/#organization\"},\"image\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396#primaryimage\"},\"thumbnailUrl\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg\",\"keywords\":[\"HARD\",\"Introduction\",\"Loans\",\"Money\"],\"articleSection\":[\"Real Estate\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/fivemor.com\/?p=139396#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fivemor.com\/?p=139396\",\"url\":\"https:\/\/fivemor.com\/?p=139396\",\"name\":\"An Introduction to Hard Money Loans - Som2ny Network\",\"isPartOf\":{\"@id\":\"https:\/\/fivemor.com\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396#primaryimage\"},\"image\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396#primaryimage\"},\"thumbnailUrl\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg\",\"datePublished\":\"2025-03-17T10:44:03+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/fivemor.com\/?p=139396#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/fivemor.com\/?p=139396\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/fivemor.com\/?p=139396#primaryimage\",\"url\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg\",\"contentUrl\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg\",\"width\":1024,\"height\":683},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/fivemor.com\/?p=139396#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/fivemor.com\/?bp_activities=1\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"An Introduction to Hard Money Loans\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/fivemor.com\/#website\",\"url\":\"https:\/\/fivemor.com\/\",\"name\":\"Som2ny Network\",\"description\":\"Daily Deals\",\"publisher\":{\"@id\":\"https:\/\/fivemor.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/fivemor.com\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/fivemor.com\/#organization\",\"name\":\"Som2ny Network\",\"url\":\"https:\/\/fivemor.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/fivemor.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2026\/07\/4a0953c4-logo-300x86-1.png\",\"contentUrl\":\"https:\/\/fivemor.com\/wp-content\/uploads\/2026\/07\/4a0953c4-logo-300x86-1.png\",\"width\":300,\"height\":86,\"caption\":\"Som2ny Network\"},\"image\":{\"@id\":\"https:\/\/fivemor.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/fivemor.com\/#\/schema\/person\/b85e3c3dc0e1daea076524dc8810c371\",\"name\":\"admin\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/fivemor.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/729ae85bf62b9917e93538db2f2688ca?s=96&r=g&default=https%3A%2F%2Ffivemor.com%2Fwp-content%2Fplugins%2Fbuddypress-first-letter-avatar%2Fimages%2Fdefault%2F96%2Flatin_a.png\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/729ae85bf62b9917e93538db2f2688ca?s=96&r=g&default=https%3A%2F%2Ffivemor.com%2Fwp-content%2Fplugins%2Fbuddypress-first-letter-avatar%2Fimages%2Fdefault%2F96%2Flatin_a.png\",\"caption\":\"admin\"},\"sameAs\":[\"https:\/\/fivemor.com\"],\"url\":\"https:\/\/fivemor.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"An Introduction to Hard Money Loans - Som2ny Network","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/fivemor.com\/?p=139396","og_locale":"en_US","og_type":"article","og_title":"An Introduction to Hard Money Loans - Som2ny Network","og_description":"Understanding how to finance real estate deals is an essential part of any real estate investor\u2019s education. There are many financing options available to investors who want to buy rental properties; however, savvy investors know that utilizing leverage via the correct financing vehicle is key to increasing return on investment. What is Leverage? Leverage is […]","og_url":"https:\/\/fivemor.com\/?p=139396","og_site_name":"Som2ny Network","article_published_time":"2025-03-17T10:44:03+00:00","og_image":[{"width":1024,"height":683,"url":"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg","type":"image\/jpeg"}],"author":"admin","twitter_card":"summary_large_image","twitter_misc":{"Written by":"admin","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/fivemor.com\/?p=139396#article","isPartOf":{"@id":"https:\/\/fivemor.com\/?p=139396"},"author":{"name":"admin","@id":"https:\/\/fivemor.com\/#\/schema\/person\/b85e3c3dc0e1daea076524dc8810c371"},"headline":"An Introduction to Hard Money Loans","datePublished":"2025-03-17T10:44:03+00:00","mainEntityOfPage":{"@id":"https:\/\/fivemor.com\/?p=139396"},"wordCount":843,"commentCount":0,"publisher":{"@id":"https:\/\/fivemor.com\/#organization"},"image":{"@id":"https:\/\/fivemor.com\/?p=139396#primaryimage"},"thumbnailUrl":"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg","keywords":["HARD","Introduction","Loans","Money"],"articleSection":["Real Estate"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/fivemor.com\/?p=139396#respond"]}]},{"@type":"WebPage","@id":"https:\/\/fivemor.com\/?p=139396","url":"https:\/\/fivemor.com\/?p=139396","name":"An Introduction to Hard Money Loans - Som2ny Network","isPartOf":{"@id":"https:\/\/fivemor.com\/#website"},"primaryImageOfPage":{"@id":"https:\/\/fivemor.com\/?p=139396#primaryimage"},"image":{"@id":"https:\/\/fivemor.com\/?p=139396#primaryimage"},"thumbnailUrl":"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg","datePublished":"2025-03-17T10:44:03+00:00","breadcrumb":{"@id":"https:\/\/fivemor.com\/?p=139396#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/fivemor.com\/?p=139396"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/fivemor.com\/?p=139396#primaryimage","url":"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg","contentUrl":"https:\/\/fivemor.com\/wp-content\/uploads\/2025\/03\/AdobeStock_221757691-1024x683.jpeg","width":1024,"height":683},{"@type":"BreadcrumbList","@id":"https:\/\/fivemor.com\/?p=139396#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/fivemor.com\/?bp_activities=1"},{"@type":"ListItem","position":2,"name":"An Introduction to Hard Money Loans"}]},{"@type":"WebSite","@id":"https:\/\/fivemor.com\/#website","url":"https:\/\/fivemor.com\/","name":"Som2ny Network","description":"Daily Deals","publisher":{"@id":"https:\/\/fivemor.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/fivemor.com\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/fivemor.com\/#organization","name":"Som2ny Network","url":"https:\/\/fivemor.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/fivemor.com\/#\/schema\/logo\/image\/","url":"https:\/\/fivemor.com\/wp-content\/uploads\/2026\/07\/4a0953c4-logo-300x86-1.png","contentUrl":"https:\/\/fivemor.com\/wp-content\/uploads\/2026\/07\/4a0953c4-logo-300x86-1.png","width":300,"height":86,"caption":"Som2ny Network"},"image":{"@id":"https:\/\/fivemor.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/fivemor.com\/#\/schema\/person\/b85e3c3dc0e1daea076524dc8810c371","name":"admin","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/fivemor.com\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/729ae85bf62b9917e93538db2f2688ca?s=96&r=g&default=https%3A%2F%2Ffivemor.com%2Fwp-content%2Fplugins%2Fbuddypress-first-letter-avatar%2Fimages%2Fdefault%2F96%2Flatin_a.png","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/729ae85bf62b9917e93538db2f2688ca?s=96&r=g&default=https%3A%2F%2Ffivemor.com%2Fwp-content%2Fplugins%2Fbuddypress-first-letter-avatar%2Fimages%2Fdefault%2F96%2Flatin_a.png","caption":"admin"},"sameAs":["https:\/\/fivemor.com"],"url":"https:\/\/fivemor.com\/?author=1"}]}},"_links":{"self":[{"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/posts\/139396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=139396"}],"version-history":[{"count":0,"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/posts\/139396\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=\/wp\/v2\/media\/139397"}],"wp:attachment":[{"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=139396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=139396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=139396"},{"taxonomy":"dealstore","embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fdealstore&post=139396"},{"taxonomy":"offerexpiration","embeddable":true,"href":"https:\/\/fivemor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fofferexpiration&post=139396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}