Definition
A hard money loan is short-term financing secured by the property itself rather than the borrower's income or credit history. These loans carry higher interest rates and fees than a conventional mortgage, and terms usually run six to 24 months. Approval can happen in days because the lender is mainly underwriting the property, not the buyer. Renovators and investors use hard money to purchase houses that a traditional bank won't touch — a home with fire damage, missing permits, or serious deferred maintenance, for example. For a seller, a buyer using hard money can still close quickly, but it's worth confirming the loan is actually committed before assuming the sale is a done deal.
Example
Ray owned a house with extensive water damage that no bank would finance because the property wasn't considered habitable under a standard mortgage. A local buyer secured a hard money loan in less than a week by pledging the property itself as collateral, then closed on the purchase and began repairs almost immediately after signing. Ray got his sale done without spending a dime fixing the place up first, and he didn't have to wait through a normal 30-to-45-day mortgage timeline that most retail buyers would have needed. Because the lender was mainly evaluating the property's value rather than the buyer's income or credit, the underwriting moved in days instead of weeks. Ray compared the hard money buyer's timeline against a traditional listing and realized months of repairs and showings would have cost him more in the end. He closed within nine days, paid no commissions, and never had to set foot back inside a house he no longer wanted to own.