What Is Hard Money Lender?
A hard money lender loans based on the property's value (often arv for rehabs)—not your credit or income. Terms are short (6–18 months), rates are high (10–14%), and points (2–4%) are common. Use them when you need speed: flips, brrrr (refinance out after rehab), or competitive auctions. They close in 5–14 days. The exit is usually a refinance or sale. Compare to private-money-lenders—often lower rate but harder to find.
A hard money lender provides short-term, asset-based loans secured by the property—typically used for flips, brrrr, or value-add deals where speed matters more than rate.
At a Glance
- What it is: A lender that loans based on property value, not credit
- Why it matters: Speed and flexibility for flips and brrrr
- Typical terms: 6–18 months, 10–14% rate, 2–4 points
- Loan-to-value: Often 65–75% of arv or as-is value
- Exit: Refinance or sale
How It Works
Qualification. They care about the deal: arv, repair cost, your experience. Credit and income matter less. They want to know: if you default, can they sell the property and recover?
Loan structure. Loan-to-value (LTV) on arv minus repair holdback. Example: $200K arv, $40K repairs. Loan: 70% of $200K = $140K. They may fund 70% of purchase + 100% of repairs, or a different structure. Points (2–4%) paid at closing.
Exit. For brrrr: buy, rehab, rent, refinance with conventional lender, pay off hard money. For flip: buy, rehab, sell, pay off at closing.
Real-World Example
Jacob in St. Louis. Jacob bought a $95,000 house for a flip. Arv: $165,000. Repairs: $35,000. Hard money loan: 70% of $165,000 = $115,500. He used $66,500 for purchase + $35,000 for repairs = $101,500. He brought $9,500 to closing (difference). Rate: 12%, 6 months. Points: 3% ($3,465). He flipped in 4 months for $162,000. Loan cost: ~$4,000 interest + $3,465 points. Net after sale: $31,500. Conventional lender wouldn't have funded a flip—hard money made the deal.
Pros & Cons
- Speed—close in 5–14 days
- Asset-based—credit and income matter less
- Flexible terms—tailored to the deal
- Enables flips and brrrr that conventional lenders won't fund
- Expensive—10–14% rate, 2–4 points
- Short term—must exit on schedule
- Default = they foreclose—no workout like a bank
Watch Out
- Exit risk: If you can't refinance or sell on time, you're in default. Have a backup plan. Refinance early—don't wait until month 5 of a 6-month loan.
- Points and fees: Factor total cost into your deal. 3 points + 12% for 6 months = ~8% of loan amount in cost. Does the deal support it?
- Repair holdback: Some fund repairs in draws. Understand the process—delays in draw funding can slow your rehab.
Ask an Investor
The Takeaway
Hard money is a tool for speed and flexibility. Use it for flips and brrrr when conventional lenders won't work. Know your exit before you borrow. It's expensive—make sure the deal supports the cost.