Key Takeaways
- Hard money loans carry 10-14% rates, 2-4 points, 65-75% LTV, and 6-18 month terms.
- Funding speed (5-14 days) and minimal documentation are the primary advantages over conventional lending.
- Hard money is strategic for fix-and-flip, uninhabitable properties, and situations requiring speed.
- The industry includes direct lenders, fund-based lenders, and broker networks.
Hard money and private lending occupy a critical niche in real estate finance—they provide fast, flexible capital for deals that cannot be financed through traditional channels. These short-term, asset-based loans fund fix-and-flip projects, bridge acquisitions, and time-sensitive opportunities where speed matters more than rate. This lesson introduces the hard money landscape, key terminology, and the fundamental differences between hard money, private money, and traditional lending.
What Is Hard Money Lending?
Hard money loans are short-term, asset-based loans made by non-bank lenders (individuals or companies) who underwrite primarily based on the property's value rather than the borrower's income or credit. The term "hard money" refers to the hard asset (real estate) securing the loan. These loans typically carry interest rates of 10-14%, origination fees of 2-4 points (each point = 1% of the loan amount), terms of 6-18 months, and LTV ratios of 65-75% of as-is value or up to 90% of purchase price with 100% of rehab costs for fix-and-flip programs. The trade-off is clear: higher cost in exchange for speed (5-14 day funding), flexibility (credit issues tolerated), and access (no income documentation required).
| Parameter | Hard Money | Private Money | Conventional |
|---|---|---|---|
| Interest Rate | 10-14% | 8-12% | 6-8% |
| Points/Fees | 2-4 points | 1-3 points | 0-1 points |
| LTV | 65-75% as-is | 60-80% | 75-97% |
| Term | 6-18 months | 6-60 months | 15-30 years |
| Funding Speed | 5-14 days | 7-21 days | 30-45 days |
| Underwriting Focus | Property value, exit strategy | Relationship + property | Borrower income + credit |
| Documentation | Minimal | Varies | Full documentation |
Hard money vs. private money vs. conventional financing comparison
When Hard Money Makes Strategic Sense
Hard money is not a last resort—it is a strategic tool for specific situations. It makes sense when speed is required (foreclosure auctions, competitive markets), when the property condition prevents conventional financing (uninhabitable, no kitchen/bathroom), when the borrower cannot qualify conventionally (self-employed, recent credit event, too many financed properties), or when the business plan involves a short-term hold with a defined exit. Fix-and-flip investors are the primary users, followed by developers, wholesalers closing on assignments, and investors bridging to permanent financing.
The Hard Money Ecosystem
The hard money lending ecosystem includes direct lenders who fund from their own balance sheet (offering faster decisions but limited capital), fund-based lenders who pool investor capital into a lending fund (larger capacity, more standardized terms), and broker networks that connect borrowers with appropriate lenders. The industry has professionalized significantly since 2015, with many national lenders offering online applications, standardized draw processes, and transparent fee structures. Key national hard money lenders include Kiavi (formerly LendingHome), Lima One Capital, RCN Capital, and CoreVest, alongside thousands of regional and local operators.
Key Takeaways
- ✓Hard money loans carry 10-14% rates, 2-4 points, 65-75% LTV, and 6-18 month terms.
- ✓Funding speed (5-14 days) and minimal documentation are the primary advantages over conventional lending.
- ✓Hard money is strategic for fix-and-flip, uninhabitable properties, and situations requiring speed.
- ✓The industry includes direct lenders, fund-based lenders, and broker networks.
Sources
Common Mistakes to Avoid
Using hard money for long-term holds without a clear exit strategy
Consequence: Monthly carrying costs of 1-1.5%+ erode profits quickly; a 12-month hard money loan can cost 12-18% of the loan amount in interest alone
Correction: Only use hard money for projects with a defined 6-12 month exit plan (sale or refinance) and model the full carrying cost in your deal analysis
Comparing hard money rates directly to conventional mortgage rates
Consequence: Rejecting hard money as "too expensive" without considering the time value of money and opportunity cost of slow conventional closings
Correction: Evaluate hard money on a total cost basis: compare the 6-month carrying cost against the profit enabled by faster execution and less restrictive underwriting
Not verifying the lender's track record and funding certainty before signing a term sheet
Consequence: Some lenders fail to fund at closing, leaving the borrower scrambling and potentially losing earnest money
Correction: Request references from recent borrowers, verify proof of funds, and confirm the lender's funding source (balance sheet vs. broker) before committing
Test Your Knowledge
1.What is the primary basis for hard money loan underwriting?
2.What is a typical interest rate range for hard money loans?
3.When is hard money financing most appropriate?