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How do hard money loans work

Hard money loans aren’t available to everyone. Typically, they can only be used for investment purposes. If you plan on using a hard money loan to buy your own home, then it’s unlikely you’ll get approved. Hard money loans are typically given for a term of 6-24 months only. While it’s possible to get a hard money loan for a period of time greater than this, it’s unlikely to be cheap – or easy. Most hard money lenders will expect a balloon payment at the end of the loan for the principal and interest. Rather than making payments each month (like a traditional lender would expect), this gives you greater freedom. Hard money is great if you a short term loan that is approved fast. 

Most traditional lenders are ok approving 80-90% LTV loans. In contrast, hard money lenders expect you to bring some of your own money to the deal. Each hard money lender will require you to bring at least 20-30% of the overall loan amount to the table. Most lenders lend at around 50-60% LTV. Anything greater than that will generally involve greater scrutiny.