Hard money loans close in 7-14 days with rates between 10-15% and are based primarily on property value, not creditworthiness. Conventional loans take 30-45 days, charge 5-8% interest, and require strong credit, income verification, and 20% down. Hard money costs significantly more but works when time is critical or the property doesn't qualify for traditional financing.
You're looking at a property. It's a solid deal — maybe a distressed flip, maybe a bridge between sales. You run the numbers and they work. Then you hit the fork in the road: Do you apply for a conventional loan and pray the bank moves fast enough? Or do you reach for hard money, knowing it'll cost more but close in days instead of weeks?
This isn't a theoretical question. Real estate investors face this choice constantly. This guide cuts through the marketing on both sides. We'll show you exactly how hard money and conventional loans differ, when each one wins, and how to calculate which path makes financial sense for your specific deal.
| Category | Hard Money Loan | Conventional Loan |
|---|---|---|
| Interest Rate | 10-15% (average 12%) | 5-8% (varies with credit score) |
| Loan Term | 6-24 months (typically 12) | 15-30 years |
| Approval Time | 24-72 hours | 3-5 business days |
| Close Time | 7-14 days | 30-45 days |
| Credit Score Required | 580+ (rarely a hard cutoff) | 620-740+ (varies by program) |
| LTV/LTC Ratio | 65-85% LTC | Up to 95% (owner-occupied) |
| Loan Purpose | Investment, fix-and-flip, bridge, construction | Primary residence, investment, refinance |
| Down Payment | 15-35% | 5-20% |
| Origination Fees | 2-4 points | 0.5-1.5% |
| Who Qualifies | Investors, self-employed, LLC entities, poor credit | W-2 employees, strong credit, stable income |
| Prepayment Penalty | Rare | Generally none |
| Documentation | Property-focused (appraisal, photos, scope of work) | Income-focused (tax returns, pay stubs, bank statements) |
| Property Condition | Distressed, as-is, needs major work | Must be move-in ready |
| ARV Lending | Common — lends against after-repair value | Not available — current value only |
A 1970s apartment building needs a new roof, foundation work, and electrical updates. No conventional lender will touch it. Hard money lenders don't care — they lend on the property's after-repair value (ARV).
Real example: $400,000 purchase price, $100,000 in repairs, $600,000 ARV. Hard money lender loans 70% LTC on the project cost ($350,000 loan). A conventional lender would reject the property outright.
You find a foreclosure or pocket listing. The seller needs a decision in 48 hours. You can close with hard money in 10 days. A conventional loan takes 40 days — deal's gone.
You own a business, but your tax returns don't reflect actual earnings (legal depreciation, S-corp structures). A conventional lender wants 2 years of clean returns. Hard money lenders don't ask — they look at the deal and your down payment.
You buy, renovate, and sell within 6-12 months. A 30-year conventional mortgage doesn't align with a temporary hold. Hard money aligns with your timeline. You close in 10 days, renovate for 8 months, sell, pay back in 12 months.
Fannie Mae caps investor loans at 10 properties. You own 10. You find an 11th deal. Hard money fills the gap while you stabilize and later refinance into a portfolio loan.
You need a 15- or 30-year amortization. Hard money lenders won't fund primary residences (compliance risk). If you have decent credit and stable income, conventional rates at 6-7% are a fraction of hard money costs.
You're buying a rental you'll hold for 20 years. A $300,000 loan at 7% conventional vs. 12% hard money is $1,500-$2,000 more per month in interest alone. Over 10 years: $180,000-$240,000 in extra interest. Hard money was designed for short holds.
If you have a 740+ credit score, stable W-2 income, and you're not in a sprint — conventional financing offers rates you can't beat. Hard money's advantage is speed and flexibility, not price.
The Deal: $300,000 purchase, $100,000 down, $200,000 loan needed, 12-month hold.
Scenario A: Hard Money Loan
Scenario B: Conventional Loan
Hard money costs $22,800 more for this 12-month hold. That's the cost of speed, flexibility, and being able to close the deal at all when conventional financing would have failed or missed the window.
When this math works: You close the deal 30+ days earlier, begin renovations sooner, and avoid the risk of conventional underwriting declining your loan mid-process.
When it doesn't: When there's no time pressure and the property qualifies for conventional financing.
Yes. This is the core of the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat).
Real example: Buy for $200,000 with hard money, spend $50,000 on renovations, property appraises at $350,000. Conventional lender finances 65% of appraised value = $227,500. You pull out $27,500 in equity, pay off hard money, drop to 6.5% conventional rate.
Hard money was expensive for 6-9 months — but it got you in the door and built equity fast.
Why are hard money loan interest rates so much higher than conventional loans?
Hard money lenders take significantly more risk: they lend to borrowers with weak credit, finance properties banks won't touch, close in days (higher operational cost), and can't sell loans on the secondary market. A conventional loan is backed by government-sponsored enterprises and distributed across a secondary mortgage market. A hard money loan is a private contract where the lender eats the loss on default. That risk premium is the rate difference.
Can I use a hard money loan to buy a primary residence?
No, not through reputable hard money lenders. Most prohibit owner-occupied primary residences due to regulatory and compliance reasons. Additionally, there's no economic sense — if you're buying a primary residence, use conventional financing at 6-7% rather than 12%+ hard money.
How does a hard money lender evaluate a property differently than a bank?
Banks care about the borrower (credit, income, employment). Hard money lenders care almost exclusively about the property and your down payment. They ask: What's the current as-is value? What's the ARV? What's the LTC ratio? What's your exit strategy? How much are you putting down? They don't ask for tax returns or pay stubs.
What is the maximum LTV for a hard money loan?
Hard money lenders typically lend up to 65-85% LTC (loan-to-cost), with some specialized lenders going to 90%. This differs from conventional investment property loans, which max at 80% LTV on current appraised value.
Is a hard money loan the same as a bridge loan?
No, but they're similar. Bridge loans are specifically designed for the gap between selling one property and buying another. Hard money is a broader category — it can be bridge loans, fix-and-flip loans, construction loans, or any short-term asset-based lending. All bridge loans are short-term, but not all hard money loans are bridges.
Justin is the founder of Broker Cheetah and Power Loan Group, with over 20 years of experience in hard money lending and real estate investing. He has personally brokered over $58 million in hard money loans and built Broker Cheetah to solve the problem he faced daily: finding the right lender for each specific deal, fast.
Last Updated: April 2026
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