Hard Money Loan Requirements

A hard money loan is a type mortgage used in residential and commercial lending. The lender will supply the money but with strict requirements. These types of loans are for borrowers with plenty of cash, but perhaps a low credit score. Credit is not important in these mortgages because the lender is using collateral against the loan. The collateral is usually the residence you are purchasing. A hard money loan comes with a very high interest rate, but for some borrowers it may be an option for obtaining a mortgage.

First Lien

A hard money loan is only for the first position, meaning it can't be used as a second mortgage. They will not lend to a borrower who needs a second mortgage for lack of equity. In case of default, they want to be the first in line to recoup any proceeds.

Loan to Value

Loan to value is a term used to describe how much the loan will be in comparison to the value of the home. If you are purchasing a home at $100,000 and need a mortgage of $70,000, then the loan to value would be seventy percent. In hard money situations, the loan to value is usually sixty to seventy percent.


A hard money lender will not lend more than sixty to seventy percent of the value of the home. So you must purchase something with instant equity, such as a bank owned property, or more commonly, you must have the cash to put down. You would be required to put thirty to forty percent of the loan down at closing in cash. This type of loan is really only meant for those with access to cash.

Cross Collateral

If you are purchasing a home and do not have the thirty to forty percent down, the hard money lender may perform a cross lien. This is where they put a lien on another property you own that has some equity in it. This lien serves as collateral for the new hard money loan you are trying to obtain.


A hard money loan is an option if you have poor credit since there are no credit requirements. It also may be an option for those who are self employed and don't want to document income. Hard money loans are commonly used for investing. In this scenario, an investor may take out a hard money loan for a rehab or flip. Also they may use a hard money loan for a new construction project. In these cases, it is easier to obtain funding than trying to obtain a traditional mortgage, especially if they have several other investment properties simultaneously. For investors, these loans carry high interest rates, but they don't carry the mortgage long before selling the property.

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