Hard Money Loan

A hard money loan is a short-term loan from a private lender secured by real estate, underwritten mainly on the property's value rather than the borrower's income or the property's rent. Rates run 10 to 12% or more with points. DSCR loans are the long-term financing investors refinance hard money into.

Hard money funds purchases that conventional and DSCR lenders will not touch: properties in poor condition, fast closings, heavy renovations. Terms are usually six to twenty-four months, interest-only, with one to three points.

The two products work in sequence. An investor buys and renovates with hard money, leases the property, then refinances into a 30-year DSCR loan once the property is stabilized and the rent covers the new payment. For a stabilized rental the DSCR loan is cheaper and permanent; for a project the hard money loan is the only option. The DSCR at refinance decides how much of the hard money loan the permanent loan can pay off.

Further reading: Hard Money Loan on Wikipedia.