Hard money loan structure describes how a real-estate-secured loan works: the amount advanced, interest, fees, payment schedule, collateral, and conditions. The written agreement matters more than a general description of what lenders “usually” do.
Review the hard money loan structure
- Amount and proceeds: How much is borrowed, and how much cash is available after deductions?
- Payments: Do payments reduce principal, cover interest only, or follow another schedule?
- Maturity: When is the remaining balance due?
- Security: Which property and other commitments support repayment?
- Costs: What fees, charges, and possible penalties apply?
Understand valuation and lien position
Ask which property value is used and how the loan-to-value calculation is defined. Do not assume one standard percentage applies to every offer.
Have a qualified professional explain lien priority and existing debt. A first-lien description is not a guarantee that a transaction is safe or that every claim has been considered.
Plan for the final payment
An interest-only payment may leave a substantial balance at maturity. Review how repayment would work if a planned sale is delayed or refinancing is unavailable. The California Department of Real Estate’s borrower guide explains general balloon-payment concerns; applicable requirements depend on your transaction and location.
Compare written offers carefully
Private lenders do not have unlimited freedom to impose any term. Obtain appropriate legal and financial advice, ask questions, and compare the complete obligations before signing.