Choosing a hard money lender on rate alone is the most common and most expensive mistake in private lending. Draw speed, leverage basis, minimum loan size, and extension terms affect your actual return far more than a fraction of a point on the rate — because on a short-term loan, time is the dominant cost.
What actually differs between hard money lenders
- Leverage basis. Some lend against current purchase price, others against after-repair value. That single difference can change your cash requirement by tens of thousands on the same deal.
- Rehab funding. Whether renovation is funded at all, how much, and whether it is advanced or reimbursed.
- Draw process and speed. How quickly an inspection is scheduled and funds release after you request a draw.
- Minimum and maximum loan size. A floor rules out cheaper markets entirely.
- Market coverage. Which states and property types they will actually fund, including rural and small-town restrictions.
- Extension terms. What happens at maturity if the project runs long — and what it costs.
- Experience requirements. Some lenders require a track record of completed projects; others fund first-timers at lower leverage.
- Who values the property. Their appraiser, a broker price opinion, or an internal desktop valuation.
Draw speed is the hidden cost
This is the variable investors underweight most, and it is the one that determines whether a project finishes on schedule.
If a lender takes two weeks to inspect and fund each draw, and your project has four draws, that is eight weeks of interest and carrying cost added to the timeline — on a loan where interest accrues monthly and the term is finite. A lender a quarter-point cheaper with slow draws is more expensive in practice.
Ask specifically: "From the moment I request a draw, how many days until the inspection, and how many days until funds hit my account?" Then ask for a reference from a borrower who has actually done draws with them. Advertised turnaround and actual turnaround are frequently different numbers.
Questions to ask before you commit
- Do you lend in this market, on this property type, at this loan size?
- Is leverage based on purchase price or after-repair value?
- Do you fund rehab, and is it advanced or reimbursed after work is completed?
- What is the full draw process, and what is the realistic turnaround?
- What are all the costs — rate, points, draw fees, inspection fees, exit fee?
- What is the term, and what exactly happens at maturity if I need more time?
- How do you value the property, and who pays for it?
- How fast, realistically, from a complete file to funding?
- Are you the capital source, or brokering this to someone else?
Warning signs
- Large upfront fees before a term sheet. Appraisal or valuation deposits after written terms are normal. Substantial fees before them are not.
- Vagueness on the draw process. This is the operational heart of the loan. A lender who cannot describe it precisely has not thought about it.
- No clarity on what happens at maturity. Extension terms should be known before you start, not negotiated under pressure at the deadline.
- Terms that change after the appraisal with no new information. Legitimate repricing follows a genuine finding. Repricing without one is a signal.
- Reluctance to give references. Any established lender has borrowers who will speak to their draw process.
Does a local hard money lender matter?
Less than investors expect. National lenders fund across state lines routinely, and what varies is whether a lender is comfortable underwriting your specific market — not where their office sits.
Where local genuinely helps is market knowledge on unusual submarkets, contractor and inspector relationships, and speed on a valuation. Where it does not help is pricing or leverage, which are set by the lender's capital, not their postcode.
Terms vary by lender, asset, and market, and change with conditions. Figures here describe what is typical across the private lending market — they are not a quote. Send us the scenario for real numbers.
