Hard money loans play a pivotal role in real estate by offering fast, asset-backed financing that lets investors capitalize on distressed properties and time-sensitive deals.
This guide is designed for real estate investors, fix-and-flip developers, self-employed borrowers, agents and anyone seeking alternatives to traditional bank financing.
A hard money loan is a short-term, asset-backed loan secured primarily by the property’s value rather than the borrower’s credit. Originating in private lending circles, it emerged to fill the gap when banks declined high-risk, quick-turnaround deals.
Unlike conventional mortgages that rely on income verification and credit scores over 30 years, hard money loans focus on collateral, close in days or weeks, and span 6–24 months with higher rates.
Private money loans often stem from individuals or family offices and can mirror hard money terms. Bridge loans are short-term bank products to “bridge” temporary financing gaps. Hard money is more flexible than typical bridge financing.
Rates range from 9% to 15%, with upfront points (1–4%) and origination fees. Lenders price risk of quick flips or distressed deals into their fees.
Most hard money lenders advance 65%–75% of the property’s current or after-repair value (ARV) to protect against market swings.
Terms run 6–24 months. Borrowers plan exits via sale (“flip”), refinance into a conventional mortgage or lease to cover payback.
Lenders order a quick appraisal or valuation to confirm the as-is or ARV. The property itself secures the loan, minimizing emphasis on credit history.
First-time flippers leverage fast funding to acquire and rehab homes without lengthy bank approval.
Experienced developers juggle simultaneous projects and use hard money to maintain momentum and maximize ROI.
Self-employed individuals or those with challenged credit turn to asset-based lenders who value property over FICO.
Real estate pros, students in property programs or educators use small hard money advances for short-term strategy demonstrations.
Approvals in days, flexible underwriting, few income documents and clear collateral focus make hard money a go-to for fast deals.
Interest and fees run high, terms are brief, and failure to refinance or sell risks lender foreclosure.
Some lenders ignore credit scores; others require a minimum. Experience, exit plans and collateral often outweigh FICO.
Lenders order appraisals or broker price opinions to verify market or ARV values and set conservative loan amounts.
Tax returns, bank statements or profit-and-loss statements satisfy income checks when W-2s aren’t available.
Borrowers submit project timelines, line-item rehab budgets and contractor bids to demonstrate feasibility and exit viability.
Research local hard money lenders, check reviews, request sample term sheets and compare rates, points and LTV limits.
Submit property info, borrower background and exit strategy. Underwriters review collateral, budgets and market comps.
Once underwriting clears, lenders order an appraisal, issue a conditional approval and schedule a closing—often within 7–14 days.
Funds can be disbursed in full at closing or via draw schedules tied to rehab milestones or inspections.
Complete renovations, list at market, sell quickly and repay lender from proceeds.
Stabilize property, improve credit or income, then refinance into a 15–30 year mortgage at lower rates.
Convert to a rental, cover debt service with rent, then refinance or sell after stabilization.
If a conventional refinance isn’t ready, roll into another bridge or private loan to extend term.
Conventional loans offer low rates and long terms but come with slow approvals, strict credit and income requirements.
Private money often has softer terms or lower rates if lending relationships exist, but still focuses on collateral.
Bridge loans from banks have lower LTV limits and stricter underwriting; HELOCs require existing equity and may face draw restrictions.
Commercial hard money funds larger-scale projects, often with lower LTVs and more stringent feasibility studies than residential deals.
Closings often occur in 7–14 days, subject to appraisal and title search timelines.
Expect 9%–15% interest, 1–4 points and origination fees of 1%–3% of the loan amount.
Most lenders cap at 65%–75% of as-is or ARV values to safeguard against market declines.
Late fees and default interest apply; extensions may incur additional points or roll existing interest into principal.
Watch for prepayment penalties, undisclosed appraisal fees, servicing fees and automatic draws tied to rehab milestones.
Sarah spots a $200,000 distressed home requiring $50,000 in rehab with a projected 30-day auction close.
Lender offers 70% of ARV ($350,000) = $245,000 loan. Funds cover $200,000 purchase plus $45,000 rehab.
Day 1: Apply. Day 10: Close. Day 11–60: Rehab. Day 61: List & sell. Day 75: Repay loan + interest and points.
Plan exit early, verify rehab costs, vet your lender and maintain clear draw schedules to avoid surprises.
Hard money loans offer fast, collateral-based financing ideal for flips and short-term holds, but carry higher costs and tighter terms.
Use referrals, review term sheets, compare LTV limits and check track records before committing.
Explore industry blogs, join real estate investment groups and read guides on fix-and-flip financing to deepen your knowledge.
