Finance term
Hard Money Loan
Also known as: hard money lending, hard money mortgage, private money loan
Definition
A hard money loan is a short-term, asset-based loan secured by real estate — underwritten primarily on the property's value (LTV) rather than the borrower's credit — used mainly for real estate acquisition, renovation, and bridge financing.
Detailed explanation
Hard money loans are funded by private investors or specialty lenders (not banks) and are secured by real property. The underwriting emphasis is on the collateral's after-repair value (ARV) or current value — not the borrower's credit score, income documentation, or business history. This makes hard money accessible to investors with credit challenges or time pressure, at the cost of significantly higher rates and fees.
Typical hard money terms: rates of 8-15% interest-only, origination fees of 1-4 points (1-4% of loan amount), terms of 6-24 months, LTV of 60-75% of current appraised value or ARV. Because payments are usually interest-only, monthly payments are lower than on fully amortizing loans, preserving cash during renovation or lease-up phases.
Common use cases: fix-and-flip residential properties, bridge financing while conventional financing is arranged, construction or renovation projects that don't meet conventional lending standards, and commercial real estate acquisitions where speed of closing is critical. Hard money lenders can close in 7-14 days versus 45-90+ days for bank financing — this speed is often the primary differentiator for competitive real estate markets.
◈ Worked example
- An investor buys a $200,000 distressed property needing $50,000 in renovation. Hard money lender approves 65% LTV on $300,000 ARV = $195,000 loan at 12% interest-only + 2 points origination. Monthly payment: $1,950. After renovation, refinances to conventional at lower rate.
- A commercial property buyer needs to close in 10 days — bank says 60 days minimum. Hard money lender closes in 8 days at 11% + 2 points on $800,000 property; borrower refinances to permanent loan 6 months later.
- Hard money example economics: $150,000 loan at 12% interest-only = $1,500/month. 12-month hold + 2 points origination: total cost ~$21,000 = ~14% effective cost.
Common questions
The most-asked questions about Hard Money Loan — answered straightforwardly.
Who uses hard money loans? +
Primarily real estate investors — fix-and-flip investors needing fast closes, developers bridging construction to permanent financing, and investors with credit challenges who rely on property equity rather than personal income documentation. Hard money is not typically used for owner-occupied homes or business working capital.
What LTV does a hard money lender use? +
Typically 60-75% of current appraised value or after-repair value (ARV), depending on property type and market. Residential fix-and-flip: often 65-70% ARV. Commercial: 60-65% of current value. The lender is protected even in a partial market decline because the equity cushion exceeds the loan balance.
Is a hard money loan the same as a bridge loan? +
Hard money is a type of bridge financing, but not all bridge loans are hard money. 'Hard money' specifically describes asset-based private lending with minimal credit underwriting. 'Bridge loan' is a broader term for any short-term loan that bridges between two financial events — banks also offer bridge loans with conventional underwriting standards.
Further reading
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