Hard Money vs Conventional Loan: Which Is Right for Your Deal?
Hard money and conventional loans both finance real estate, but they serve different borrowers and different deals. Here’s how they compare side-by-side — and when each one is the right call.
| Feature | Hard money | Conventional |
|---|---|---|
| Typical rate | 9–12% | 6–8% (investment property) |
| Origination points | 1–3 | 0–1 |
| Loan term | 6–24 months | 15–30 years |
| Time to close | 7–14 days | 30–60 days |
| Income docs required | Minimal | Tax returns, W-2s, pay stubs |
| Credit score min | 620+ typical | 680+ typical for investment property |
| Property condition | Distressed OK | Must be habitable |
| Borrower type | Investors | Owner-occupants + investors |
When hard money wins
Hard money is the right product when speed, flexibility, or property condition make conventional financing unviable. This covers most fix-and-flip deals, most auction purchases, most ground-up construction, and most short-term bridge scenarios. The underwriting focus shifts from the borrower’s W-2 to the property’s value and the deal’s business plan.
When conventional wins
If the property is stabilized and habitable, and you have the income documentation to qualify, a conventional investment-property mortgage will almost always be cheaper. You’ll save 200–500 basis points on rate and avoid the origination points hard money charges. The tradeoff is 30–60 days to close instead of 7–14.
A common combined strategy
Many experienced investors use both products in sequence: acquire and renovate with hard money (fast close, no property condition requirements), then refinance into a long-term DSCR or conventional loan once the property is stabilized. This captures the speed of hard money on the front end and the low rates of conventional on the back end.
Frequently asked questions
When should I use hard money instead of a conventional loan?
Use hard money when speed matters (competitive market, auction purchases), when the property won’t pass conventional inspection (rehab projects), when you can’t document income the way Fannie/Freddie requires, or when you need short-term bridge financing. If the property is habitable and you have time, conventional is almost always cheaper.
Can I refinance hard money into a conventional loan?
Yes, this is a common exit strategy. Buy and renovate with hard money, then refinance into a long-term conventional or DSCR loan once the property is stabilized. Most conventional lenders require 6 months of seasoning before they’ll refinance.
Why are hard money rates so much higher?
Three reasons: hard money lenders take on more risk (distressed properties, less borrower documentation), the loans are shorter-term with higher administrative cost per dollar lent, and the capital behind hard money is private (not GSE-backed), so it demands market-rate returns.
Do hard money loans report to credit bureaus?
Most hard money loans do not report to consumer credit bureaus because they’re business-purpose loans, not consumer loans. This means paying off a hard money loan won’t help build your personal credit, but it also means the loan won’t appear on your personal credit report.
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