Question 1

What is a hard money loan?

Accepted Answer

A hard money loan is a short-term, asset-based loan secured by real property. Unlike conventional mortgages (which focus on the borrower's creditworthiness), hard money loans are based primarily on the property's value and the equity position. Key characteristics: short terms (6-36 months), higher interest rates (8-15%+), lower loan-to-value ratios (typically 60-75% LTV), faster closing (days to weeks vs. weeks to months for conventional), origination fees of 1-5 points, and funded by private investors or lending companies rather than banks. In Florida, hard money loans are commonly used for fix-and-flip projects, bridge financing, and investment property acquisitions.

Question 2

When are hard money loans used in Florida?

Accepted Answer

Common uses: fix-and-flip projects (investors purchase distressed properties, renovate, and resell), bridge financing (short-term funding between selling one property and purchasing another), investment property acquisitions (when conventional financing is too slow or unavailable), construction loans (for smaller projects where bank construction loans are impractical), land purchases (conventional lenders often will not finance raw land), borrowers with credit issues (the property's value matters more than the borrower's credit score), and foreclosure prevention (quick funding to pay off a delinquent mortgage). Florida's active real estate investment market makes hard money lending particularly prevalent.

Question 3

What are the risks of hard money loans?

Accepted Answer

Risks include: high cost (interest rates 2-3 times higher than conventional loans, plus origination points), short terms requiring a clear exit strategy (refinance or sale), default can result in rapid foreclosure (hard money lenders move quickly to protect their investment), the property may not appreciate enough to cover the loan costs, renovation costs may exceed estimates (reducing the equity cushion), the borrower may be unable to refinance into conventional financing before the term expires, and some hard money lenders include prepayment penalties or balloon payment provisions. Due diligence on the lender is important; Florida's mortgage lending laws (Chapter 494) apply to most hard money lenders.

Hard Money Loan

Hard Money Loans

Key Characteristics

Florida Uses

Risks

Related Terms

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