A hard money loan is short-term financing secured by real estate and underwritten primarily on the strength of the asset and the borrower's credit, not on the borrower's income. It is the financing most active investors use to buy, rehab, and build, because it moves at the speed the business actually requires.
The name is old industry slang. "Hard" refers to the hard asset, the property, that backs the loan. The quality of that asset and your credit are what the lender leans on, while your tax returns and debt-to-income ratio stop being the center of the conversation. The deal is the center of the conversation.
How it is different from a bank loan
A conventional bank mortgage is designed for an owner-occupant buying a home they plan to live in for years. Everything about it, the paperwork, the timeline, the underwriting, is built around that borrower. Hard money is built around a completely different customer: an investor who needs to close fast, add value, and get back out.
| Hard money loan | Conventional bank loan | |
|---|---|---|
| Underwritten on | The asset, the deal, and your credit | Your income and debt-to-income ratios |
| Time to close | Days | 30 to 60 days |
| Term length | Short, often 6 to 24 months | 15 to 30 years |
| Payments | Usually interest-only | Principal and interest |
| Best for | Flips, rehab, construction, fast closes | Long-term holds, primary residences |
| Cost | Higher rate plus points | Lower rate, lower fees |
Yes, hard money costs more per dollar borrowed. That is the trade. You are buying speed, flexibility, and the ability to borrow against a property a bank would never touch, like a house that needs a full gut rehab. For a project measured in months, the higher rate is a cost of doing business, and a small one next to the profit a good deal produces.
How lenders size the loan
Two numbers drive almost every hard money loan.
Loan-to-cost (LTC)
This is the percentage of your total project cost the lender will fund, meaning purchase price plus rehab budget. A lender advancing up to 90% LTC is covering most of the deal, leaving you to bring a smaller share to the table.
After-repair value (ARV)
This is what the property will be worth once the work is done. Lenders cap the loan at a percentage of ARV, commonly around 70 to 75%, so that even after repairs there is a healthy equity cushion protecting the loan. The ARV is usually the real ceiling on how much you can borrow.
A strong hard money lender funds the purchase and most or all of the rehab, holds back the construction money in draws released as the work is completed, and sizes the whole thing so both you and the lender are protected by the finished value. You bring a down payment and closing costs, the lender brings the rest.
What it is used for
- Fix-and-flip. Buy a distressed property, fund the rehab, sell for a profit. The classic use case.
- Rehab and BRRRR. Buy and renovate with hard money, then refinance into a long-term loan once the property is stabilized. More on this in our BRRRR guide.
- New construction. Fund ground-up builds where a bank sees only dirt and risk.
- Bridge and fast closes. Win a deal that requires closing in a week, then refinance or sell on your own timeline.
What it costs
Hard money pricing has two main parts, and understanding both keeps you from being surprised at the closing table.
Interest rate
Charged on the outstanding balance, usually interest-only, so your monthly payment covers just the interest while you hold the loan. Investor rehab and construction financing commonly runs in the range of roughly 9% to 12%, depending on the project and the borrower.
Points
A point is 1% of the loan amount, paid up front as the lender's origination fee. Two to four points is typical. On a $200,000 loan, three points is $6,000. Points are the price of getting the money placed and the deal underwritten quickly.
Because the loan is short and interest-only, the total dollar cost is usually far smaller than the rate alone suggests. A 12-month loan you pay off in five months only accrues five months of interest.
How to qualify
Qualifying for hard money is driven by the asset and your credit rather than your income, but lenders look at the whole picture.
- A deal that pencils. The numbers have to work. A clear purchase price, a realistic rehab budget, and a defensible ARV.
- Credit and the asset. We do review your credit and the quality of the property. Strong credit and a quality asset get you approved and earn better terms.
- Skin in the game. A down payment and closing costs. Lenders want you invested alongside them.
- An exit. How the loan gets paid off, whether that is a sale or a refinance. A lender wants to know the money is coming back.
- Some track record helps. Experience can earn better terms, but strong deals get funded even for newer investors.
- Hard money is short-term financing underwritten on the asset and your credit, not your income.
- It closes in days and funds deals banks will not, which is why active investors rely on it.
- Loans are sized by loan-to-cost and after-repair value, so the finished value protects everyone.
- It costs more per dollar, in rate and points, but for a months-long project that cost is small next to the profit.
Common questions
Do you check credit?
Yes. We look at your credit and the quality of the asset. What we do not do is underwrite your personal income the way a bank does, so self-employed and full-time investors are not penalized for how their tax returns read.
Is hard money only for experienced investors?
No. Newer investors get funded all the time when the deal is strong. The asset and your credit carry most of the underwriting.
How fast can I close?
Days, not weeks. That speed is the entire point of the product.
Do I make monthly payments during the rehab?
Usually yes, interest-only on the drawn balance. Some deals structure interest reserves, but plan on covering the carrying cost while you hold the loan.