Glossary › Glossary
A hard money loan is a short-term, asset-based loan secured by real estate — primarily used by investors, not homebuyers. The loan is underwritten on the property's value and the deal economics rather than the borrower's personal income or credit profile. Hard money lenders move fast (7-21 days to close), charge higher rates and fees than conventional lenders, and fund property types and deal structures that conventional lenders will not touch.
The name does not mean the loan is hard to get. It refers to the "hard asset" — the real property — that secures the loan. Hard money is asset-based lending: the collateral drives the underwriting more than the borrower's financial profile.
This is the core difference from conventional mortgage lending:
Conventional mortgage: Underwritten primarily on the borrower's income, credit score, debt-to-income ratio, and employment history. The property is the collateral, but the borrower's financial profile is the primary qualification.
Hard money loan: Underwritten primarily on the property's value and the deal economics. The borrower's experience and financial condition matter, but the asset drives the decision.
Short term: Hard money loans are not 30-year mortgages. Standard terms run 12-24 months. They are designed for a specific transaction — buy, renovate, sell or refinance — not long-term holding.
Higher rates: Hard money interest rates are higher than conventional mortgage rates. Typical range: 9-13%+ annually. The premium reflects the lender's speed, flexibility, and the additional risk of construction/renovation projects.
Points at closing: Hard money lenders charge 1-4 points (1-4% of the loan amount) as an origination fee at closing, in addition to the interest rate.
Fast closing: A properly matched and submitted hard money loan can close in 7-21 days. This speed is one of the primary reasons investors use hard money — conventional loans cannot move this fast, and many investment opportunities require a fast close.
Property-types conventional lenders avoid: Distressed properties, properties requiring significant renovation, properties in poor condition — conventional lenders will not fund these. Hard money lenders regularly do.
Loan to entity, not personal: Most hard money loans are made to an LLC or other legal entity, not in the borrower's personal name.
Fix and flip investors: Buy a distressed property, renovate it, sell it for a profit. Hard money funds the purchase and renovation, then gets paid off from the sale proceeds.
BRRRR investors: Buy-Rehab-Rent-Refinance-Repeat. Hard money funds the fix-up phase; the investor refinances into a long-term DSCR loan once the property is stabilized and rented.
Ground-up builders: Developers and spec home builders fund land acquisition and construction with hard money, then sell or refinance upon completion.
Bridge borrowers: Investors who need to move fast on a new acquisition before a current property sells, or who need short-term financing while transitioning a property from one use to another.
Commercial value-add investors: Buyers of underperforming multifamily or commercial properties who need bridge financing while they stabilize the asset before permanent financing.
Not a predatory loan: Hard money is commercial real estate lending for investors. It is not designed for homebuyers, and it should never be used for owner-occupied primary residences (regulations restrict this in most states).
Not the lender of last resort: Hard money is not a place for deals that no one else will fund because the numbers do not work. It is for deals that do not fit conventional lending timelines or property requirements, but that have sound economics.
Not mysterious or inaccessible: Despite the name, hard money is a well-established lending category with professional lenders, underwriting standards, and a clear application process. The barrier is knowledge, not access.
Hard money rates look high compared to conventional mortgages. But the comparison is misleading for short-term investor deals:
On a $300,000 fix and flip held for 6 months at 11% interest:
If the property was purchased at $300,000, renovated for $50,000, and sold for $440,000, the investor netted approximately $67,500 before financing costs — or $45,000 after financing costs. The 11% rate that sounds expensive represents a manageable portion of a profitable deal.
Rate matters. But it is one variable in the deal math, not the only one.
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