If you’ve worked in the lending industry or the house flipping business before, you’re probably already familiar with the concept of a hard money loan. You also probably know what the difference between a hard money loan and a private money loan is. But for those not quite in the know, it can be a little confusing.

So to make understanding the difference a little easier, we’ve created a basic breakdown on what a hard money loan is, what you can expect, and what sort of rates you might see.

What Is a Hard Money Loan?
Hard money loans are simply short-term loans that are secured and backed by real estate. Typically, they are funded by private investors or a ground of investors, as opposed to a more conventional lender like a bank or credit union. Each loan can differ in term length, but they typically last around 12 months.

The loans typically are paid back with monthly installments on the interest and principle, with a large, complete payment at the end of the term. They also don’t require you to have been in business for two years and have $250,000 in revenue and other factors, like a typical bank loan.

How Much Can Be Borrowed?
The amount that a lender can give to a borrower is based on the value of the property or asset used as collateral. The property can be the one that the borrower is already in possession of or the property that the borrower is acquiring the loan.

Hard money lenders are also more concerned with the value of the property than the borrower’s credit, and so a borrower that has poor credit or a recent foreclosure can still get a loan if they have sufficient equity. As long as collateral of sufficient value is given, a loan can be given.

What Are Hard Money Loan Rates?
Hard money loan rates and points will vary from lender to lender, and even from region to region. Hard money lenders in California, for example, will have a lower rate than one in Wisconsin due to competition. More lending firms, more competition, decreased prices and rates.

However, there is more risk involved with a hard money loan, and so hard money loan rates will likely be higher than conventional loans would be. Generally, the rates tend to range from 10% to 15%, depending on the lender and risk viewed with the loan.

A hard money loan is a great choice for those people who need the ability to make a payment fast and can make a profit quickly. The above qualities makes this type of loan a favorite of many house flippers and real estate investors.