Hard Money vs. Conventional Loans
Choosing between hard money and conventional financing is one of the most important decisions real estate investors make. Each has distinct advantages and trade-offs. Hard money loans offer speed and flexibility at higher cost. Conventional loans offer lower rates and longer terms but with stricter qualification and slower processing.
Side-by-side comparison
| Factor | Hard money | Conventional |
|---|---|---|
| Approval speed | 3-10 days | 30-45 days |
| Interest rate | 10-15% | 6-8% |
| Loan term | 6-24 months | 15-30 years |
| Down payment | 20-30% | 20-25% |
| Credit requirements | Flexible (600+) | Strict (680+) |
| Income verification | Minimal | Full documentation |
| Property condition | Any (including distressed) | Must be habitable |
| Points/fees | 2-5 points | 0-2 points |
| Prepayment penalty | Usually none | Sometimes |
When to use hard money
Hard money is the right choice when: you need to close quickly (competitive deal or auction), the property does not meet conventional lending standards (distressed, vacant, non-habitable), your personal credit or income documentation does not meet conventional requirements, or the investment is short-term (flip, rehab, bridge to sale or refinance).
The cost premium of hard money is justified when speed or flexibility creates value that exceeds the higher interest and fees. Winning a deal at $180,000 with hard money that you would have lost at $195,000 waiting for conventional approval saves $15,000 minus the hard money premium.
When to use conventional
Conventional financing is better for: long-term buy-and-hold investments where the lower rate compounds over years, properties in good condition that meet lender standards, investors with strong credit and documented income, and refinancing stabilized properties out of hard money.
The BRRRR strategy connection
The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) uses both: hard money for the initial purchase and renovation, then refinancing into a conventional loan once the property is stabilized and rented. This approach combines the speed and flexibility of hard money with the long-term cost advantage of conventional financing.