In simplest terms, hard money loan is a type of asset based loan financing wherein the borrower gets funds that's secured by real property. In most instances, hard money loans are issued by private companies or investors and the rate of interests are higher when compared to traditional residential or commercial property loans. The reason for this is that it comes with higher risk as well as short duration that come with the loan.
Majority of hard money loans are being used for projects that last for months to few years. Whether you believe it or not, this type of loan is similar to a bridge loan that nearly has the same criteria for lending and cost to borrowers. The major difference here is that, hard money loan is referring to investment property or perhaps, commercial property that may be in transition and does not yet qualify for traditional financing whereas hard money means not only the asset based loan with high interest rate but the possibility of distressed financial situation such as arrears on existing mortgage or where foreclosure and bankruptcy proceedings occur.
Hard money lenders always care on the property and ensure that they're in a strong position and is less about borrowers. Documentation of income - as a matter of fact, this is quite a popular reason why there are a lot of borrowers who are applying for hard money mortgage loan. Similar to bad credit, it's hard to get a financing if you can't prove your income. And for the borrower, they still need to deal with the losses from investment several years back and write off recent tax returns.
Hard lenders on the other hand care less about the borrower's income and know that self-employed debtors usually have more income than what they can show. Financiers of hard money want to see a solid deal and money in the bank. And after the conformation that the payments to the loan will be made according to the money that the borrower has, the lender will do the deal.
Timing - this is another known reason to why people are working with hard lenders. Deals can get done fast and truth is, they can be done within days. Timing option can also make the offer become stronger for the buyers and having a quick access to cash is giving buyers more confidence of making plenty of low offers.
Comfort of doing business - in reality, it is a lot harder to get approval from conventional financing even if you're qualified for it. The underwriters are searching for reasons on how to reject loans so they take a while and collecting lots of documents. As for hard money lenders, it is easier to work with them and not trying to kill the deal even though they look at the same documents. For more details, visit https://en.wikipedia.org/wiki/Hard_money_loan.