Hard Money Loan

What is a hard money loan?

A hard money loan is short-term financing secured primarily by the property itself rather than the borrower’s income or credit profile. Private lenders and small funds issue these loans to house flippers, BRRRR investors, and builders who need speed and flexibility that banks cannot offer: closings in days instead of weeks, financing for properties too distressed to qualify for conventional loans, and draw schedules for renovation budgets.

The convenience is expensive. Typical terms in the mid-2020s are 9.5% to 13% interest plus 1 to 3 points, with 6-to-18-month terms and loans sized around 80% to 90% of purchase price and 100% of rehab costs, capped near 70% to 75% of the after-repair value (ARV). Most are interest-only with a balloon at maturity.

Hard money is bridge capital, not permanent financing. The exit plan, selling the flip or refinancing into a long-term loan once the property is stabilized, must be realistic before you borrow, because extensions are costly and unsold projects at maturity can force distressed sales. Used correctly, the high cost is simply a project expense that speed and access justify.

Worked example

A flipper buys a $150,000 house needing $50,000 of work, borrowing $135,000 toward purchase plus the full rehab budget at 11% interest and 2 points. Over a seven-month project, interest runs roughly $11,900 and points cost $3,700, about $15,600 of financing cost the flip’s profit margin must absorb.

Frequently asked questions

Why would anyone pay hard money rates?

Because the loan makes deals possible that banks will not touch: closing in five days to win a competitive bid, financing a house with no kitchen, or funding 100% of a renovation budget. For a profitable six-month flip, the difference between 11% hard money and a 7% bank loan is a few thousand dollars, small next to the profit, and often smaller than what a slow or failed closing would cost.

What do hard money lenders look at if not my income?

Primarily the deal: purchase price versus ARV, the realism of the rehab budget, and the exit plan. Most also check experience (completed flips), require meaningful cash into the deal, verify liquidity to cover payments and overruns, and pull credit for major red flags. A strong deal with a proven operator gets funded; a thin deal does not, regardless of W-2 income.

Related tools and guides

• Real Estate Investment Calculator