Hard Money vs Soft Money Loans

The term “hard money” is short term bridge loan used by real estate investors.  Soft money loans refer to conventional loans usually through a bank or mortgage company. Hard money loans are arranged through private individuals or companies often called private lenders. Lead Funding is a private lender providing financing to local investors with competitive rates, quick-closings, and complimentary essential tools and services. In an article by Bill Gassett titled “What’s the Difference Between a Hard Money and Soft Money Loan?” details three main differences: Credit, Rates and Terms/Length of Loan.

Credit: In the simplest of term, when referring to real estate, hard money loans are secured by the value of a piece of property plus the market value of repairs (ARV or After Repair Value) on that property. Hard money loans are made by a private investor or group of investors. Soft money generally is also secured by real property and is also dependent on the borrowers credit history, income, and down payment. Soft money generally refers to a conventional loan made by a bank or mortgage company.

Because a hard money loan is made on the property value plus ARV, and not lengthy credit checks, the access to the money is much quicker. Lead Funding can close most loans in a matter of a few days and does not require tax returns or income verification.

Rates (or the cost of money): Hard money interest rates are usually higher then soft money rates with loans starting at 10-11%. The rate is high because of the shorter terms and risk to the lender. Hard money lenders are highly governed with strict restrictions. The actual rates and terms will be at the discretion of the lender.

Terms / Length of Loan: Soft money or traditional loans can be anywhere from 15 to 30 years which makes sense for the smaller interest rate. Hard money loans can average between 6-24 months which is perfect for a house flipper sense the goal is to sell the property in the fastest time possible. Depending on the type of hard money loan you have, you could possibly extend the term but most investors should try to work within the time frame to keep the cost of money down.

Bill Gassett concludes that for real estate investors looking for a fast loan, without tying up their personal assessts for a shorter amount of time, with less hassle, hard money is a clear winner.

Contact Lead Funding for your next project. We are a flexible, competent and easy-to-work with lender. We lend against most forms or real estate: residential, commerical, and land. We do not require tax returns, income verification, or pre-sales (for builders), or rarely have limits on the use of proceeds.

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