Hard Money Loans: Short-Term Bridge Financing for Real Estate Investors

How Hard Money Loans Are Priced

Hard money loan pricing has three components. The interest rate typically ranges from 10% to 15% annual percentage rate (APR), with interest-only payments required monthly. Points are upfront fees calculated as a percentage of the loan amount — 2 points means 2% of the loan paid at closing. On a $150,000 loan, 3 points equals $4,500. The loan-to-value (LTV) ratio is based on the after-repair value (ARV), not the purchase price. Typical LTV is 65-75% of ARV. For a $200,000 ARV property, the maximum loan might be $140,000 (70% LTV). Some lenders also cap the loan at 80-90% of the purchase price plus renovation costs. Loan terms are short — typically 6 to 24 months — with the expectation that the borrower will either sell the property or refinance into conventional financing before maturity. Compare hard money with conventional mortgages →

When to Use Hard Money Loans

Hard money loans are best suited for specific scenarios. Fix-and-flip: buy a distressed property at a discount, renovate, and sell within 6-12 months. The hard money loan provides acquisition and renovation capital quickly. Bridge financing: buy a new property while waiting for your current property to sell, using the hard money loan to bridge the gap. Auction purchases: need cash at auction within days — hard money lenders can close in 5-14 days while banks take 30-60 days. Credit challenges: if your credit score is below 620 or you have unconventional income (self-employed, business owner), hard money lenders will still lend based on property value. Property in poor condition: banks will not lend on uninhabitable properties, but hard money lenders will. The key rule: only use hard money if you have a clear exit strategy — sale, refinance, or cash-out refinance — within the loan term. Flipping with hard money loans →

Hard Money vs Private Money vs Bridge Loans

These terms are sometimes used interchangeably but have distinct differences. Hard money loans come from institutional private lenders who specialize in asset-based lending — they have standardized processes, higher rates, and less relationship focus. Private money loans come from individuals (friends, family, fellow investors) who lend based on personal relationships and trust — terms are more flexible and rates lower (8-12%). Bridge loans are a broader category of short-term financing that includes hard money but also includes bank bridge loans, HELOCs, and portfolio lender bridge products with rates closer to conventional (6-9%). The distinction matters because cost and flexibility vary significantly. Private money from a trusted partner is almost always preferable to institutional hard money if you have access to it. Compare with margin loans for securities →

Risks and Exit Strategy Planning

Hard money loans are expensive and carry significant risks. Default and foreclosure: if you cannot sell or refinance before the loan matures, the lender can foreclose. High monthly payments: $1,500/month in interest on a $150,000 loan at 12% erodes profit margins quickly — every month the property sits unsold costs you $1,500. Renovation cost overruns: if repairs take longer or cost more than expected, your carrying costs increase and your exit timeline stretches. Refinance risk: if interest rates rise or the property does not appraise at the expected ARV, you may not qualify for a conventional refinance. The key to successful hard money borrowing is conservative underwriting: assume a lower ARV, longer timeline, and higher interest rate than you expect. Plan for the worst case and you will survive the average case. Refinancing out of hard money with BRRRR →

What is the minimum credit score for a hard money loan?

Hard money lenders focus on the property value, not your credit score. Most lenders accept scores as low as 550-600, and some have no minimum. However, better credit may result in slightly lower rates or higher LTV. The lender's primary concern is whether you have enough equity in the property to cover their loan in case of default.

How fast can I get a hard money loan?

Hard money loans can close in 5 to 14 days, compared to 30-60 days for conventional mortgages. The lender needs an appraisal or broker price opinion (BPO) of the ARV, proof of funds for your down payment, a renovation budget, and a clear exit strategy. The fastest closings happen when the borrower has documentation ready and a property that is easy to appraise.

What happens if I cannot pay back a hard money loan?

If you default, the lender will foreclose on the property. Because hard money lenders have a lower cost basis (they lent based on ARV, not purchase price), they may be willing to negotiate a short sale or deed-in-lieu of foreclosure. However, the personal guarantee on most hard money loans means the lender can also pursue you personally for any deficiency. Extensions are possible but costly — typically 1-2 additional points plus continued interest.

Can I use a hard money loan for a primary residence?

Hard money loans are designed for investment properties, not owner-occupied homes. Federal regulations (TILA/RESPA, ability-to-repay rules) make it difficult for hard money lenders to originate loans on primary residences. If you need short-term financing for your primary home, consider a home equity line of credit (HELOC), personal loan, or bridge loan from a bank.

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