What Is a Hard Money Loan?
A hard money loan is a short-term, asset-based loan secured by real property. Unlike traditional bank loans that scrutinize your income, tax returns, and credit history, hard money lenders focus primarily on the value of the property and the viability of the exit strategy.
This makes hard money ideal for situations where speed matters, the property needs work before it qualifies for conventional financing, or when a borrower's personal financial profile doesn't tell the full story of the deal's potential.
Hard Money at a Glance
When Should You Use a Hard Money Loan?
Fix-and-Flip Projects
Purchase and renovate distressed properties for resale. Hard money covers acquisition plus rehab costs with short 6-12 month terms.
BRRRR Strategy
Buy, Rehab, Rent, Refinance, Repeat. Hard money provides the initial capital to acquire and improve properties before refinancing.
Auction & Competitive Purchases
Close in days instead of weeks. Hard money's speed lets you win deals where conventional financing can't keep up.
Bridge to Stabilization
Fund property improvements or lease-up periods before qualifying for permanent, lower-rate conventional financing.
Hard Money vs. Conventional Loans: Key Differences
| Factor | Hard Money | Conventional |
|---|---|---|
| Closing Speed | 7-14 days | 30-60 days |
| Primary Focus | Property value & exit plan | Borrower income & credit |
| Interest Rate | 9-14% | 6-8% |
| Term Length | 6-24 months | 5-30 years |
| Credit Flexibility | High (asset-based) | Low (680+ typically) |
| Property Condition | Can be distressed | Must be habitable |
How to Qualify for a Hard Money Loan
Hard money underwriting is deal-driven. Here's what lenders evaluate:
The Property & ARV
What is the property worth now, and what will it be worth after improvements? Most lenders cap at 70-75% of After Repair Value (ARV).
Exit Strategy
How will you repay the loan? Sale of the property, refinance into conventional, or another defined plan. This is the #1 factor.
Borrower Experience
First-time investors can get funded, but experience strengthens the deal. A track record of completed projects earns better terms.
Down Payment / Equity
Expect to bring 20-30% of the purchase price or demonstrate equivalent equity in the property.
Scope of Work
For rehab projects, a detailed renovation budget and timeline demonstrates competence and helps lenders underwrite rehab draws.
Hard Money Pitfalls to Avoid
No clear exit strategy
Hard money loans are short-term by design. Without a defined refinance or sale plan, you risk extension fees or default.
Underestimating rehab costs
Unexpected costs erode margins fast. Always add a 10-15% contingency buffer to your renovation budget.
Ignoring holding costs
Interest payments, insurance, taxes, and utilities during the hold period add up. Factor these into your deal analysis.
Choosing only on rate
The cheapest rate isn't always the best deal. Speed, reliability, draw processes, and extension terms matter just as much.
Frequently Asked Questions About Hard Money Loans
What is a hard money loan?
A hard money loan is a short-term, asset-based loan secured by real estate. Unlike conventional bank loans that focus heavily on the borrower's income and credit, hard money lenders primarily evaluate the property's value and the deal's exit strategy. They're commonly used for fix-and-flip projects, BRRRR investments, and time-sensitive acquisitions.
What are typical hard money loan rates?
Hard money loan rates typically range from 9% to 14%, depending on the lender, LTV, borrower experience, and property type. Points (origination fees) usually range from 1-3 points. While higher than conventional rates, the speed, flexibility, and asset-based underwriting often make them the best tool for the job.
Can I get a hard money loan with bad credit?
Yes. Hard money lending is primarily asset-based, meaning the property's value and your deal's exit strategy matter more than your personal credit score. While some lenders have minimum credit thresholds (often 600-620), strong deals with solid equity can get funded even with challenged credit.
How fast can a hard money loan close?
Hard money loans can close in as little as 7-14 days, and sometimes faster for experienced borrowers with straightforward deals. This speed is one of the primary advantages, especially for auction purchases, competitive bidding situations, and time-sensitive opportunities.
What is the BRRRR strategy and how does hard money fit in?
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. Hard money loans finance the Buy and Rehab phases. After renovation, the property is rented and then refinanced into a conventional loan at the new, higher appraised value—pulling out your initial capital to repeat the process.
Need a Hard Money Loan for Your Next Deal?
Growth Fund Partners connects real estate investors with hard money lenders through direct relationships—not broker networks. Get funded in days, not months.