Before you apply for a hard money loan, try applying with a subprime mortgage lender first for lower rates and fees. Hard money lenders charge excessive fees to high-risk borrowers, but will only lend 50% to 75% of the value of the property. On the other hand, subprime lenders offer loans to similar high-risk groups, but with better terms.

Subprime lenders specialize in B, C, and D class loans. Even with a bankruptcy in your financial records, you can still be approved for a mortgage with a subprime lender. To protect themselves from the higher risk of foreclosure, subprime lenders charge a couple of interest rates higher with additional fees.

Hard money loans are funded by private individuals, who require high interest rates somewhere between 12% to 18%. This is nearly double what a reputable subprime lender would typically charge. You can also expect to pay higher fees upfront with hard money lenders.

Subprime lenders offer mortgage loans similar to that of traditional mortgage lenders. You can expect regular payments and terms, such as no early payment fees. Subprime lenders also require smaller down payments, even zero down if you have a FICO score of 600.

However, hard money lenders may require a balloon payment in one to two years or other difficult terms. Hard money lenders also require as much as 50% of a down payment for the loan to ensure they will make a profit even if they foreclose on the property.

Subprime lenders also offer refinancing, unlike hard money lenders. Many subprime lenders will automatically offer refinancing after three years of regular payments so you can reduce your mortgage interest rates or tap into equity. Hard money lenders are interested in high profits, so they will only deal with high interest rates and terms profitable to them.

Hard money loans have their place in the financing world. Primarily used for property speculation and development, hard money loans make sense for short-term borrowing. They can also be successfully used for purchasing non-traditional properties such as ranches, where the property value is not realized by a traditional bank.