Which type of financing is primarily derived from the equity in a property?

The correct answer is a hard money loan, which is primarily derived from the equity in a property. Hard money loans are typically short-term loans secured by real estate, and they are often used by investors looking to purchase or rehabilitate properties quickly. The value of the loan is based on the property’s current value or the equity available, rather than the borrower’s creditworthiness. This type of financing provides flexibility and speed, making it attractive to those in need of quick cash.

In contrast, conventional mortgages are generally based on the borrower’s credit history and income rather than the equity in the property itself. Subprime mortgages, while they may accommodate borrowers with lower credit scores, still rely on traditional underwriting processes and often do not focus directly on property equity. Government-backed loans, such as FHA or VA loans, are designed to make home ownership accessible and typically depend more on borrower qualifications and less on the equity in the property. Thus, hard money loans uniquely leverage equity as their primary source of financing.