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Why is it called a hard money loan?

Hard money loans are a type of alternative financing that is often used by investors to purchase and renovate distressed properties. They are called "hard money" loans because they are backed by the value of the property being purchased, rather than the borrower's creditworthiness.

Here are a few reasons why hard money loans are called "hard money":

  1. Collateral: Hard money loans are secured by the value of the property being purchased. This means that the lender has a claim on the property if the borrower is unable to repay the loan. This provides the lender with added security, hence the term "hard money."

  2. Asset-based lending: Hard money loans are considered asset-based lending, as they are based on the value of the property being purchased rather than the borrower's creditworthiness. This is in contrast to traditional bank loans, which are often based on the borrower's credit score and financial history.

  3. Interest rates: Hard money loans typically have higher interest rates than traditional bank loans. This is because they are considered to be higher risk for the lender, as they are based on the value of the property rather than the borrower's creditworthiness.

Overall, hard money loans are called "hard money" because they are secured by the value of the property being purchased, they are asset-based lending, and they typically have higher interest rates than traditional bank loans. If you're considering a hard money loan, it's important to understand these characteristics and to carefully review the terms of the loan before agreeing to it.


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