What is a Hard Money Lender? A Guide for Real Estate Investors

What is a hard money lender?

A hard money lender is a private individual, fund, or company that originates short-term real estate loans secured primarily by the value of the property being purchased or refinanced. Unlike banks, hard money lenders focus on the asset — the property — rather than the borrower’s credit score, income, or tax returns.

Hard money loans are typically used by real estate investors for fix-and-flip projects, bridge financing, and ground-up construction. Terms are usually 6 to 24 months. Rates run higher than conventional mortgages, but funding can close in as little as 7 to 14 days.

How hard money lenders work

Hard money lenders underwrite loans based on the property’s value, the project’s business plan, and the borrower’s experience, rather than personal income. The loan is secured by a lien on the property, so if the borrower defaults, the lender can foreclose and recoup their capital by selling the asset.

Most hard money lenders will lend 70–75% of the property’s after-repair value (ARV) or 85–90% of the purchase price plus 100% of the rehab budget, whichever is lower. These ratios are known as LTV (loan-to-value) and LTC (loan-to-cost) caps.

What does a hard money loan cost?

Hard money loans typically charge 9–12% interest, plus 1–3 points (origination fees) on the loan amount. On a $300,000 loan at 10% with 2 points, you’d pay $6,000 upfront and about $2,500 per month in interest. Most hard money loans are interest-only for the duration of the term.

Additional costs can include appraisal fees, legal fees, underwriting fees, and servicing fees. Always get a full breakdown before accepting a term sheet.

When to use a hard money lender

Hard money makes sense when speed matters more than cost: buying a foreclosure at auction, winning a competitive deal with a fast-close offer, or funding a rehab that a bank won’t touch. It’s also the primary financing for fix-and-flip investors who plan to exit the loan within 12 months.

If you have time and the property meets bank standards, conventional or DSCR financing will almost always be cheaper. Hard money is a tool for specific situations, not a default.