Since hard money lenders are not concerned with the details of the borrower, what do they base their decision to lend on? The answer is simple: the value of the collateral.
Hard money lenders focus their concern on what is called the loan-to-value ratio, or LTV. The LTV is the loan amount divided by the value of the property.
While the LTV requirement is unique to each vendor, you can generally expect it to be around 60 to 70 percent.
This means, if someone is looking to take out a $100,000 loan, the property they plan to leverage with the lender needs to be valued somewhere between $140,000 to $160,000. That way, even if the borrower fails to pay anything back, the lender remains secure since the property is valued higher than the amount of money loaned.
Because these loans are specifically suited for investments that will turn a profit quickly, interest rates can go as high as 18 percent. In contrast, traditional loan interest rates usually hover around 5 percent. [Source]