The Hard Money Loans Guide

What hard money actually is

Hard money is short-term, asset-based real-estate financing — typically 6-18 month terms, 8-14% interest rates, 1-4 points at origination. The "hard" refers to the asset backing the loan (the physical property is the security), not to the loan terms being aggressive.

Underwriting focuses on the deal's collateral value rather than the borrower's W-2 income, DTI ratio, or tax returns. A hard money lender evaluates:

1. The property's after-repair value (ARV) — typically advancing 65-75% of ARV. 2. The borrower's experience — first-time flippers face stricter terms; operators with 10+ closed deals get the best pricing. 3. The exit plan — is this a flip with a defined sale timeline? A BRRRR with a refi target? Lenders price risk based on the exit. 4. Cash reserves — most lenders require 3-6 months of debt service in reserves before funding.

Compared to conventional financing: faster (7-14 days to close vs 30-45), more expensive (300-700 bps higher all-in cost), and meaningfully more forgiving on borrower qualification. The combination makes hard money the standard for time-sensitive acquisitions where the borrower's W-2 wouldn't support conventional underwriting.

Pricing and terms

Hard money costs vary by lender, market, and deal quality. Typical 2026 ranges:

Interest rate: 9-13% annual, charged monthly on the outstanding balance. Most loans are interest-only — no principal pay-down during the loan term.

Origination points: 1-4 points (each point = 1% of loan amount) paid at closing. A 2-point loan on $200,000 is $4,000 upfront.

Loan-to-cost (LTC) vs Loan-to-value (LTV): - LTC typically 80-90% — lender funds 80-90% of (purchase price + rehab budget). - LTV typically 65-75% of ARV — lender wants their loan amount to be ≤ 75% of the post-rehab property value. - The loan is capped at whichever number is smaller. New flippers often see the LTC cap; experienced flippers in soft markets see the LTV cap.

Term: 6-18 months. Most loans 12 months with extension options (typically 3-6 months at an additional fee).

Draws for rehab funding: Most lenders fund the purchase upfront and the rehab in draws — you submit invoices and the lender reimburses, ~5-10 day turnaround per draw.

Prepayment penalties: rare on most hard-money loans. You can pay off early without penalty.

Total cost for a typical 6-month flip at $200k loan, 11% interest, 2 points: $4,000 origination + $11,000 interest (~$1,833/mo × 6) = $15,000 financing cost. On a flip with $50k projected gross profit, that's 30% of the gross — significant but workable.

How to find a hard money lender

Local lenders are usually the best starting point. Search your metro for "[city] hard money lender" and start calling 5-10. Local lenders: - Know your market intimately - Often offer better pricing than national lenders to maintain local relationships - Can move faster on draws - Are easier to develop relationships with for repeat business

Regional / national lenders like Kiavi, Lima One Capital, Visio Lending, RCN Capital, and Anchor Loans dominate the institutional space. Faster process technology, broader product offerings (including DSCR refis for the eventual takeout), generally more stringent on borrower qualifications than local lenders.

Specialty lenders focus on specific deal types: - Land/lot lenders for raw land or pre-construction - Commercial / multi-family lenders with $1M+ minimums - Brrrr-specific lenders that combine hard money for acquisition + a pre-approved refi - Wholesaling-specific transactional funders for double-closes

Building the relationship: First call: explain your target deal type, market, and experience level. Get their term sheet. Don't apply for anything yet — collect 3-5 term sheets and compare side-by-side.

After your first closed deal with a lender, the relationship becomes the asset. Repeat borrowers get better terms (lower rates, fewer points, higher LTV) over time. Most successful flippers and BRRRR operators have 2-3 primary lender relationships built over years.

Hard money vs alternatives

Conventional financing: Cheapest cost of capital but slowest (30-45 days), strictest qualification (DTI matters, 10-property cap), can't finance significant rehab. Fits: long-term holds you can close on a 30-day timeline; doesn't fit time-sensitive acquisitions or rehab-heavy projects.

Private money: Lower cost than hard money (typically 8-10%), more flexible terms, but requires building individual lender relationships. Fits: established operators who have built networks; doesn't fit beginners with no relationships.

DSCR loans: Newer product, 7.5-9.5% interest, designed for rental holds. Doesn't fund rehab — used after the property is stabilized for the takeout from hard money. Fits: BRRRR refi phase; doesn't fit acquisition or rehab funding.

Cash: Eliminates financing cost entirely but ties up capital that could fund 3-4x as many deals via leverage. Fits: capital-rich operators with limited deal flow; doesn't fit operators trying to scale.

Owner financing / subject-to: Lowest cost (often 0-5% effective rate when sub-to a low-rate mortgage). Fits: situations where the seller is motivated to walk and the loan terms are valuable; doesn't fit most arm's-length transactions.

For most flippers and BRRRR operators in their first 3-5 years: hard money for acquisition + rehab → DSCR refi for the BRRRR takeout, or sale to retire the loan for flips. Cleanest and most repeatable.

Underwriting your deal with hard money in mind

The hard-money cost has to be built into your underwrite from the start. Common mistakes:

1. Forgetting hold-cost interest. A 6-month flip at 11% on $200,000 is $11,000 of interest — not free money. Bake this into the 70% rule calculation.

2. Underestimating extensions. Most flips run 30-60 days longer than projected. If your loan is 12 months and your project runs 14, the 2 months of extension fees + interest add up fast. Plan for at least one extension period.

3. Cash-flow planning during rehab. Some lenders fund rehab in draws, but the gap between paying contractors and getting reimbursed is 7-21 days. You need working capital to bridge that gap or your contractors stop working.

4. Refi-rate assumptions. BRRRR underwriting at hard-money rates for the entire hold blows up the cash-flow math. Refi rates need to be projected accurately, including the gap between hard-money exit and DSCR closing (often 30-60 days).

5. Not stress-testing for delays. If the property takes an extra 90 days to sell, what happens to your numbers? If your refi appraisal comes in 5% light, can you still pay off the hard money?

A good rule: underwrite the deal to be profitable at +30 days of hold time + 1 point of extension fee + 5% ARV slippage. If it still pencils, the deal can absorb the normal range of execution variance.