Before learning about the difference between hard money loans and mortgage loan, let’s know a little bit about both of them individually as not many people know about it.
Hard Money Loan:
Hard money loans are basically short-term loans. These kinds of loans are mostly given by private institutions, firms and individuals. These money loans are more common in the rural areas. There are three type of hard money loans. They are:
- Property loans
- Land loans
- Gold loans
Property, land and gold works as a leverage given to the hard money lender by the borrower. Many risks are involved in hard money loans but people still take their chances with it because they are not able to get a loan from a bank or credit unions.
This type of loan is either used by a purchaser of real property to raise some funds to buy real estate or by an existing property owner who wants to raise funds for any purpose related to the property that is being mortgaged. Most of the people take a mortgage loan from a bank or financial institution to purchase a home for themselves.
The collateral or leverage for the mortgage loan is the property purchased. So no additional collateral is required for the mortgage loan. If the borrower is not able to pay off the loan, then the bank or the financial institution can sell the property to pay off the loan.
Differences between a Hard Money Loan vs. a Mortgage Loan:
Below mentioned are five points showing the difference between both the loans.
Hard Money Loan
|This type of loan is taken for purposes such as marriage, property renovation, land development, etc. You should not get a hard money loan to buy a house.||Mortgage loan is taken for purchasing a home or some real estate. Other than that, this loan is not used for any other thing.|
|Hard money loans are mostly taken for some property investment or other investments. They are not property used for personal use.||This loan is taken for purchasing a personal property which will be used as your home. This loan is not taken for some commercial property or office space.|
|Hard money loans have a high rate of interest than a bank loan.||Mortgage loan have less rate of interest than a bank loan.|
|The process to get a hard money loan can be speedy and easy. There is not much paperwork involved in this type of loan.||The process for mortgage loan takes a little bit of time and can have a bit of paperwork involved.|
|If the loan is not paid off then the leverage for the hard money loan will belong to the money lender. They can even sell the property to pay off the loan or keep it for themselves as well.||If the loan is not paid off then the bank or financial institution will sell the property and get their loan paid off with that money.|
Hope now you are able to differentiate between the hard money loan and the mortgage loan.