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Hard money loans have terms that are based mainly on the value of the property being used as collateral, not on the creditworthiness of the borrower. Since traditional lenders, such as banks, do not make hard money loans; hard money lenders are often private individuals or companies that see value in this type of potentially risky venture.
Hard money loans may be sought by property flippers who plan to renovate and resell the real estate that is used as collateral for the financing—often within one year, if not sooner. The higher cost of a hard money loan is offset by the fact that the borrower intends to pay off the loan relatively quickly—most hard money loans are for one to three years—and by some of the other advantages, they offer.
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