Hard money loans: how they work and when they’re the right move
Jacob Shimon is a professional finance writer at eBoost Partners with over seven years of experience in the commercial lending industry. A graduate of the University of Florida’s Warrington College of Business with a degree in Finance, he specializes in breaking down complex business lending topics to help entrepreneurs make smart, informed decisions.
Hard money loans are short-term, asset-based financing secured by real property – not by your credit score or income. Lenders care about the property’s value.
Rates run 9–15%, terms are 6–24 months, and closings happen in 5 to 14 days. They’re built for speed and situations where conventional financing won’t work.
I get asked about hard money constantly. Usually from investors who are under contract on a deal that’s about to fall apart because their bank is still on week three of a 60-day process.
Hard money isn’t a last resort. It’s a tool – and for a lot of real estate investors, it’s the right tool for specific situations.
The key is understanding exactly what you’re paying for and having a clear plan to get out of it.
At eBoost Partners, we see this often: an investor finds a strong deal with a 10-day closing requirement, and hard money is the only financing that makes it possible. Used correctly, that loan pays for itself in the deal it enables.
What is a hard money loan?
Hard money is a form of asset-based lending. The collateral – the property itself – is the primary underwriting criteria. The lender’s main question is: if this loan defaults, can we recover our principal by selling the property?
That’s fundamentally different from conventional mortgage underwriting, which starts with the borrower: What’s your credit score? What’s your income? How long have you been employed?
Hard money lenders skip most of that. They want to know what the property is worth now, what it’ll be worth after repairs (the After Repair Value, or ARV), and whether you have an exit plan.
These loans come from private funds, individual investors, and specialty lenders – not from banks or credit unions. They operate outside the conventional mortgage system, which is exactly what gives them their speed and flexibility.
How hard money loans work
The process starts with the property. You submit the address, your purchase price, estimated renovation budget, and your ARV estimate. The lender orders a quick appraisal or desk review. If the numbers work, they issue a term sheet – often within 24 to 48 hours.
Loan amounts are calculated based on ARV, not purchase price. A lender offering 70% LTV on a property with a $300,000 ARV will loan up to $210,000 – regardless of whether you’re paying $150,000 or $200,000 for it.
Payments during the loan term are typically interest-only. If you borrow $200,000 at 11%, you’re paying $1,833/month in interest. The principal comes due at the end of the term – usually as a balloon payment. That’s when you either sell the property or refinance.
For fix-and-flip deals, rehab funds are often held in escrow and released in draws as work is completed and inspected. You don’t get the full renovation budget upfront – you draw it down as milestones are hit.
Closing is fast. I’ve seen hard money deals close in five days when everything was ready on the borrower’s end. A more typical timeline is 7 to 14 days. Compare that to a conventional investment mortgage, which runs 30 to 60 days on a good day.
Why it matters for your financing
Speed is the obvious answer. But the real value is access.
Some deals require a fast close – auction purchases, distressed sellers, competitive off-market situations. Conventional financing can’t serve those deals. Hard money can.
Some borrowers can’t get conventional financing at all, at least not yet. Maybe they’re self-employed with two bad tax years. Maybe they just started investing and don’t have documented income from the business yet. Hard money lets them get into deals and build a track record.
And some properties don’t qualify for conventional financing. A vacant, partially renovated house won’t appraise in a way that satisfies Fannie Mae guidelines. A hard money lender who lends on ARV can fund that deal.
The cost is real. Paying 12% plus 3 points on a $250,000 loan is expensive. What I tell my clients during our first call is that the question isn’t whether hard money is cheap – it’s whether the deal justifies the cost. On a flip where you’re making $60,000 in six months, paying $18,000 in interest and points is fine. On a deal with a thin margin, it isn’t.
For a broader look at real estate investment financing options, the real estate investor financing guide covers how hard money fits alongside DSCR loans, fix and flip financing, and bridge loans.
Key components of a hard money loan
After Repair Value (ARV). This is the projected value of the property after all planned renovations are complete. It’s the anchor of hard money underwriting. Get the ARV wrong and everything downstream is wrong.
Loan-to-value ratio. Most hard money lenders cap at 65–75% of ARV. Some will go to 80% for experienced borrowers with strong track records. The LTV determines how much you can borrow.
Origination points. Hard money lenders charge 1–4 points upfront (1 point = 1% of the loan amount). On a $300,000 loan at 3 points, that’s $9,000 paid at closing.
Interest rate. 9–15% is the realistic range in 2025. The exact rate depends on lender, market, borrower experience, and deal specifics. Most hard money loans are fixed-rate for the term.
Term length. 6 to 24 months is standard. Fix-and-flip deals often use 12-month terms. Bridge loans for stabilization might run 18–24 months.
Draw schedule. For rehab projects, renovation funds are released in stages. The lender – or an inspection company they hire – verifies that work is complete before releasing the next draw.
Exit strategy. Every hard money lender wants to know how you’re getting out. Sale? Refinance into a DSCR loan? Refinance into a conventional product? If you don’t have a clear answer, that’s a problem – for the lender and for you.
Hard money loan requirements and thresholds
Credit score matters less here than anywhere else in real estate financing – but it’s not irrelevant. Many hard money lenders don’t have a minimum score. Some will go down to 550 or 600. Others set 620 or 640 as a floor. It varies significantly by lender.
Experience counts more than credit. A first-time investor will typically get lower LTV and face more scrutiny on their rehab budget. An investor who has completed 10 flips will have more leverage in negotiations.
Down payment: at 70% LTV on ARV, you’re responsible for the rest – which includes your down payment and any gap between the purchase price and the loan amount. On a $200,000 purchase with a $300,000 ARV and a 70% LTV loan ($210,000), you may have positive leverage depending on rehab costs. But budget realistically.
Exit feasibility: lenders underwrite your exit. If you claim you’ll sell for $350,000 but the comps support $280,000, you’ll get pushback on the ARV – and a lower loan amount.
Property types accepted: single-family, multi-family, mixed-use, commercial. Most hard money lenders won’t do primary residences (federal regulations make that complicated). Raw land is usually declined.
Common hard money loan challenges
The biggest problem I see isn’t the loan – it’s the exit strategy that wasn’t thought through.
An investor closes on a hard money loan at 12% with a 12-month term, renovation takes longer than expected, the market softens, and now they’re stuck paying $2,000/month in interest on an unsold property. At month 13, the balloon payment is due. That’s a crisis.
Rehab budget overruns are the second most common killer. Hard money lenders won’t add money to the deal mid-stream. If you budget $40,000 for renovation and hit $65,000, that gap is your problem – either cover it out of pocket or find a way to reduce scope.
ARV miscalculation is a structural mistake. Investors sometimes use best-case comps to support an aggressive ARV. When the appraisal comes back lower, the loan amount drops – and the deal math collapses.
Slow draws create cash flow pressure on contractors. If your lender takes 10 days to release a draw after inspection, and your contractor needs payment to continue, you’ll face work stoppages that extend your timeline and inflate your interest cost.
Extension fees are real. Most lenders will extend a loan for 1–3 months at 1–2 points per extension. That’s not the end of the world, but it’s a cost you should plan for if your project runs long.
How to improve your position for hard money financing
Know your ARV cold before you talk to a lender. Pull your own comps. Talk to a local agent or appraiser. The lender will order their own valuation, but walking in with a well-supported ARV shows you know what you’re doing.
Have a detailed renovation scope. Vague budgets make lenders nervous. A line-item breakdown by trade – demo, framing, electrical, plumbing, HVAC, finishes – tells a lender you’ve thought this through. It also protects you from surprises mid-project.
Document your experience. If you’ve done previous flips, bring the numbers. Purchase price, renovation cost, sale price, timeline. Even one or two successful deals changes how lenders price your risk.
Have a real exit plan with a backup. Primary exit: sell at $320,000 within 10 months. Backup: if the market softens, refinance into a DSCR loan and hold as a rental – in which case, run the DSCR numbers on the property before you close, not after.
Maintain liquidity. Lenders want to see that you can handle carrying costs and unexpected expenses without distress. Post-closing reserves of 10–15% of the loan amount signal financial stability.
Consider the business financing guide if you’re not sure whether hard money is the right structure for your specific situation – sometimes a different product is a better fit.
Tools and resources
The most important tool for any hard money deal is a solid comparable sales analysis. Zillow and Redfin give you a starting point, but they lag. Work with a local real estate agent who can pull MLS comps in the last 90 days within a tight radius of your subject property.
Renovation cost estimators – like the RSMeans data or BuildingConnected – help you build out a credible scope. For investors doing multiple projects, developing a relationship with a GC who can walk a property and give you reliable numbers is worth its weight.
For understanding how hard money fits into your broader real estate financing stack, the real estate investor guide covers the full spectrum – from short-term acquisition financing to long-term rental strategies.
And if you want to understand how your real estate holdings interact with your business entity structure, the working capital guide covers some of that territory.
Financing options related to hard money loans
Fix and flip loans are often structured similarly to hard money, but with specific draw mechanics for rehabilitation projects. If you’re buying a property to renovate and sell, a purpose-built fix and flip loan may offer better terms than a generic hard money product.
Bridge loans overlap significantly with hard money in structure and purpose – short-term, asset-secured, designed to bridge to permanent financing. The difference is often lender type and how aggressively the deal is underwritten. Bridge loan details here.
DSCR loans are the most common exit from a hard money loan when the investor plans to hold the property as a rental. Once the property is renovated, leased, and generating stable income, a DSCR refinance replaces the hard money with long-term debt at a much lower rate.
Conventional investment mortgages are available for stabilized properties meeting standard guidelines – but they won’t work during the rehab phase, and they require income documentation that doesn’t suit every investor.
At eBoost Partners, we work with investors at every stage of a deal – from the initial acquisition to the exit financing. If you’re looking at a deal and trying to figure out the right structure, reach out and we’ll walk through it with you.
Disclaimer: The information in this article is for educational and informational purposes only and does not constitute financial advice. All funding products, rates, and terms are provided by eBoost Partners and are subject to application, credit approval, and our current underwriting criteria. Rates and terms are subject to change without notice.
Frequently asked questions
What credit score do I need for a hard money loan?
Hard money loans are the most credit-flexible real estate financing product available. Many lenders have no stated minimum, while others set a floor at 580 or 620. What matters much more is the deal – the property’s value, your ARV estimate, and your exit strategy. That said, a credit score above 680 will get you better rates and LTV, even in hard money. Below 600, expect more scrutiny and potentially lower loan amounts.
How fast can I close with a hard money loan?
Fast. The realistic range is 5 to 14 business days when the borrower comes prepared – clear title, accurate property information, and a documented scope of work if it’s a rehab deal. Some lenders can close in 3 to 5 days for straightforward transactions with experienced borrowers. Delays almost always come from the title company or from missing documents on the borrower’s end, not the lender.
What’s the difference between hard money and private money?
The terms are often used interchangeably, and there’s legitimate overlap. Technically, hard money refers to loans made by organized private lending funds or specialty lenders – companies that do this professionally at scale.
Private money more often refers to individual investors lending their own capital, sometimes a friend, family member, or high-net-worth individual who wants a secured return.
Private money loans can be more flexible on terms but less reliable on speed and process. Hard money lenders have standardized procedures and can move more predictably. In practice, what matters is the rate, LTV, and how professional the lender’s process is.