Hard Money Loans vs Conventional Loans

Hard money loans and conventional loans are different in several ways. Both types of loans deal with residential and commercial real estate. However the requirements for approval, the costs, and the amount of time it takes to close these loans are different. Before choosing between the two, consider the major differences between hard money loans and conventional loans.


Hard money loans are more dependent on collateral than conventional loans. Since a hard money loan is considered a high risk loan, collateral is crucial. Conventional loans tend to focus more on credit history, down payment as well as assets. Collateral is required for hard money loans, while it is not always required for conventional loans. Hard money loans are almost completely asset-based.

Credit Standards

Conventional loans have higher credit standards. A good credit score, which is more than 680 is important in getting approved for a conventional loan. It is much more difficult for someone with a credit score of 500 to get a conventional loan. Hard money loan lenders might review your credit, but that is not a determining factor in approval. As long as you have sufficient collateral, bad credit should not hinder your chances of getting approved for a hard money loan.

Cost to Borrow

Hard money loans are more expensive. Again, these types of loan are high risk, especially since a high credit score is not a major requirement. It is for this reason that hard money loan lenders have higher interest rates and several points due at closing. Conventional loans give more weight to credit history, and tend to have much lower interest rates. If you plan to live on the property, a conventional loan will be less expensive in the long run.

Closing Time

Conventional loans take more time to close. Thirty to forty-five days is the average period it takes to close such a loan. A hard money loan can be closed as quickly as a few days. If you are interested in flipping a property for profit, and you need the money quickly, a hard money loan might be a good choice.

Hard money loans offer a lower loan to value ratio. This type of loan tends to cover a lot less of the property value than a conventional loan. Conventional loans may cover up to 90%-100% of the property's appraised value, while a hard money loan will only cover about half that much. Hard money loans are well-suited for properties that have a great deal of equity potential.

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