A hard money loan is short-term financing secured primarily by real estate rather than by your income or credit profile. The lender's central question is what the asset is worth and how they would recover if the plan fails — which is why these loans close in days rather than weeks, and why they fund property conventional lenders decline outright.
What is a hard money loan?
Hard money is private, asset-based lending on real estate. "Hard" refers to the hard asset securing the loan, not to the terms or the lender's disposition. The property is the primary underwriting consideration; your income documentation, debt-to-income ratio, and credit score are secondary or, on some deals, barely relevant.
That inverted priority is what produces the two characteristics investors actually buy: speed measured in days, and a willingness to fund property that is vacant, damaged, unpermitted, or otherwise outside what a conventional appraisal will accept.
What the rate premium actually buys. A bank needs a habitable, documented, income-producing property and several weeks of process. A hard money lender will fund a house with a failed roof, no kitchen, and no certificate of occupancy — and close it fast enough to win a contested contract. That capability is the product, and the price reflects it.
How hard money works
- The asset is valued. Current condition value, and on renovation deals often an after-repair value supported by comparable sales.
- Leverage is set conservatively. Because the security is doing the work, hard money lenders keep more equity cushion than a bank would.
- The exit is underwritten. The lender is not planning to hold this loan. They are assessing how it gets repaid — sale, refinance, or stabilisation.
- Funds release, sometimes in stages. Purchase funds at closing; renovation funds typically release in draws against completed and inspected work.
- Interest accrues monthly on the drawn balance, for as long as you hold the loan.
What investors actually use it for
- Fix and flip projects — the most common use, where purchase plus rehab is funded together
- Auction and foreclosure purchases with settlement windows no conventional timeline can meet
- Competitive contracts where a faster close beats a higher offer
- BRRRR acquisitions — buy and rehab on hard money, then refinance into a long-term rental loan
- Properties that fail conventional appraisal for condition, permitting, or occupancy reasons
- Commercial assets that are vacant or transitional
- Partnership buyouts and time-sensitive recapitalisations
Typical terms
| Term | What is typical |
|---|---|
| Length | 6 to 24 months, sometimes with extension options at a fee |
| Payment structure | Interest-only during the term; principal repaid at exit |
| Leverage | Conservative against current value; some programs lend against after-repair value with holdbacks |
| Rehab funding | Common, released in draws against inspected progress |
| Recourse | Usually full recourse with a personal guarantee |
| Prepayment | Usually minimal or none — early payoff is the intended outcome |
| Entity vesting | Standard; most investors close in an LLC |
What it costs
Investors who lose money on hard money almost always modelled the rate and ignored the rest. All of the following are real:
- Interest — the highest of the investor products, charged monthly for every month you hold
- Origination points — charged upfront as a percentage of the loan
- Draw fees and inspections on renovation facilities
- Carrying costs — taxes, insurance, utilities, and security across the entire hold, including the vacant period
- Extension fees if the project runs past term
- Exit costs — the sale or refinance has its own closing costs
Detail on the hard money rates and costs page, and you can model a specific deal with the hard money calculator.
The exit is the underwriting question
Every hard money loan needs a defined exit before it funds, because the loan is designed to end. Three exist:
- Sale. Model a realistic days-on-market for the actual submarket, not the best case.
- Refinance into a longer-term product — usually a DSCR loan once the property is rent-ready. Start that file well before the hard money loan matures.
- Extension. Available on most facilities at a cost. A contingency, never a plan.
The clock does not pause. When a hard money facility runs past term it typically enters a penalty phase — a default rate, monthly penalty payments, or both. Three weeks lost at the end of a project can cost more than the entire rate difference versus conventional financing.
Four persistent myths
- "Hard money is for people with bad credit." Credit affects pricing and leverage, but the typical hard money borrower is an experienced investor buying property a bank cannot fund on a timeline a bank cannot meet.
- "It's predatory." The pre-2008 informal version earned that reputation. Modern hard money comes from professional lenders on documented terms, and the pricing reflects speed and condition tolerance.
- "No documentation is required." Asset-based does not mean paperwork-free. Expect a scope of work, a budget, proof of funds, entity documents, and insurance.
- "You can hold it long-term if the numbers work." They will not. The pricing is deliberately structured to push you toward the exit, and holding stabilised property on short-term money erodes returns fast.
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.
