What is a Hard Money Loan?
A hard money loan is a short-term, asset-based loan used by real estate investors to purchase and renovate investment properties. Unlike conventional mortgages that are based on the borrower's creditworthiness and income, hard money loans are primarily based on the value of the property being purchased. The property is the "hard" asset securing the loan. Hard money lenders are typically private individuals, investment groups, or specialized lending companies -- not banks.
Hard money is the most common financing tool for fix and flip investors and BRRRR investors because it provides fast funding for properties that conventional lenders won't touch. A house with a leaking roof, missing HVAC, and foundation cracks won't qualify for a conventional mortgage. But a hard money lender will fund it based on the after-repair value, because they know the investor plans to fix it.
Typical hard money terms
| Term | Typical Range |
|---|---|
| Interest rate | 10-15% annually |
| Points (origination fee) | 1-3 points (% of loan) |
| Loan-to-value (LTV) | 65-75% of ARV |
| Loan term | 6-18 months |
| Down payment | 10-25% of purchase price |
| Funding speed | 7-14 days (some in 48 hours) |
| Prepayment penalty | Usually none |
Hard money vs conventional mortgages
| Factor | Hard Money | Conventional |
|---|---|---|
| Approval basis | Property value (asset-based) | Borrower credit/income |
| Speed | 7-14 days | 30-60 days |
| Interest rate | 10-15% | 6-8% |
| Term | 6-18 months | 15-30 years |
| Property condition | Any (including distressed) | Must be habitable |
| Use case | Investment (flip, BRRRR) | Long-term hold or owner-occupy |
When hard money makes sense
- Speed required: Competitive deals need fast closings. Hard money can close in 7-14 days versus 30-60 for conventional.
- Distressed properties: Conventional lenders won't finance properties in poor condition. Hard money will.
- Short hold period: If you plan to flip in 4-6 months, the high interest rate is only paid for a few months. The cost is manageable on a short timeline.
- Credit issues: Investors with imperfect credit can still get hard money because the loan is based on the property, not the borrower.
- Renovation funding: Many hard money lenders also fund the renovation (draws released as work is completed), providing both purchase and rehab capital.
Hard money costs in deal analysis
When analyzing a flip deal, hard money costs must be included in your deal analysis as holding costs. For example, a $150,000 hard money loan at 12% interest costs $1,500/month in interest alone. Over a 6-month flip, that's $9,000 in interest plus 2 points ($3,000) in origination fees -- $12,000 total financing cost that comes directly off your profit. This is why speed matters in flipping: every extra month costs real money.