Hard Money vs Soft Money

Difference Between Hard Money vs Soft Money

Hard money and soft money are simply assumed that hard money is liquid cash or cash on hand while soft money is the money on paper. These definitions are not true. These terms are used to refer to money loaned and the purpose behind these loans.

Apart from the differences stated below, there are some common types between Hard money vs soft money –

Both these loans are used to purchase real estate
Both these loans can be used to purchase an investment property
Even though it’s not the only factor considered in Hard money, both these loans consider borrowers history
Both these types of loans require down payment and or collateral
Interest payments are mandatory throughout the loan term

Head To Head Comparison Between Hard Money vs Soft Money (Infographics)

Below is the top 13 difference between Hard Money vs Soft Money

Key Differences Between Hard Money vs Soft Money

Both Hard Money vs Soft Money are popular choices in the market; let us discuss some of the major Difference Between Hard Money vs Soft Money:

Hard money is the loan used for specific needs and with criteria for paying it back. Soft money is borrowed with no specific intention or use.
Hard money has more lenders compared to soft money
Closings in hard money are quick and can be even two business days while closings in soft money can be thirty days. Paperwork required for hard money is comparatively less than soft money
Hard money gives more flexibility in structuring loans while soft money has its own rules and restrictions
Hard money can have on owner-occupied properties while soft money can have owner-occupied properties
Hard money loans are like asset-based financing wherein the borrower gets money and the lender’s funds are secured by the property. Soft money can be called as a type of asset-based financing that combines both the methods of hard money with the old convention of loans
The rate of interest in hard money is high since it carries a high risk to the lender. Hard money is not given out based on the credit score but on the property which is used as the base for funding. The rate of interest falls between 7% to 8%. The risk is lower since soft money lenders give out loans based on the credit score and hence the rate of interest is low and sometimes even below the average rate
Hard money is difficult to get since it involves property while Soft money is easier to acquire
In countries like the US, the use of hard money is strictly governed and have strict Soft money has no restrictions or there is no special government governing it
The funding for hard money is for properties in poor condition since it is the security provided to the lender. Soft money is generally provided for funding properties in good condition
Hard money is mainly suited for long term loans. Soft money is suited for short term goals
Pros of Soft Money – These loans become a part of the credit history and can be used to repair credit
Pros of Hard Money – It is easier to get a hard money loan in comparison to soft money since they don’t consider credit history or take credit score into account
Cons of Soft Money – The closing time for soft money are longer and have a time of ten to fourteen days
Cons of Hard Money – The interest rates are higher since the amount is high and the period is short. However, if the investor pays the loan on time than the rate of interest does not affect much