Hard Money Loans: How long is the Financing Period?

How do you finance your short-term real estate investment projects? Hard money loans provide a quicker alternative to bank loans and are secured by real estate. These loans differ from traditional mortgages that run for 10 or 30 years.
Getting a conventional mortgage on vacant or distressed real estate is very difficult. As a result, these loans are often used by most real estate investors, especially for new acquisitions.

Hard money example

A real estate investor stumbles upon an apartment complex for sale. It happens that the complex is vacant and in a state of complete despair. We all know getting a mortgage on a vacant or distressed property is impossible. So, what can the real estate investor do?

This investor has two options:

1. Getting a loan from a friend, family member, or partner.
2. Getting a hard money loan to purchase the property. The money is also used to cover expenses incurred during repairs to the apartment complex.

After the real estate property is rehabbed and ready for rent, the investor can obtain a conventional mortgage to repay the hard-money loan.

Note that the credit isn’t envisioned as permanent traditional financing. Those new to hard-money loans must remember to use them for short-term plays, not long-term holds.

Example of hard money loan terms

Private investors (or their accounts) financed the loans, not conventional lenders like credit unions or banks. Usually, the terms are around 12 months, but the loan can be extended to two to five years.  The borrower must pay monthly interest payments and a portion of the principal. The balloon payment is made at the end of the loan’s term.

The amount lenders can offer a borrower is often based primarily on the subject’s property value. Maybe the borrower owns the property and wants to use it as collateral, or it may be a property the borrower wishes to acquire.

Notes:

Hard money lenders are not concerned with your credit record but with the property's value. Borrowers who can’t obtain financing from credit unions or banks due to a recent short sale or foreclosure can still obtain a loan if they have sufficient equity in the property used as collateral.