Hard money loans close in days rather than weeks, which matters when a distressed property hits the market or an auction deadline is 72 hours away. The tradeoff is a cost structure that differs significantly from conventional financing. Understanding each term before signing protects your deal margins and your relationship with the lender.
What Makes Hard Money Loans Different
Hard money loans are asset-based: the lender underwrites primarily against the property's value, not the borrower's debt-to-income ratio or credit score. That focus on collateral allows faster decisions but shifts risk to the lender, which is reflected in pricing.
Typical loan terms run 6 to 24 months. Most hard money deals are structured as interest-only with a balloon payment, meaning monthly cash outflows are lower but the full principal comes due at maturity. Investors generally exit by selling the property or refinancing into a conventional or DSCR loan (Debt Service Coverage Ratio loan, which qualifies based on rental income rather than personal income).
Interest Rates on Hard Money Loans
Hard money interest rates currently range from roughly 9% to 15% annually, depending on the lender, the borrower's track record, and the property type. Rates at the lower end of that range typically go to experienced investors with documented flip history and strong collateral. Borrowers newer to the asset class or working with distressed collateral can expect rates closer to 13% to 15%.
A few structural points that affect the real cost:
- Interest calculation method. Some lenders charge interest on the full committed loan amount from day one; others charge only on drawn funds. On a $300,000 loan where you draw in stages for renovation, the difference can be meaningful.
- Points versus rate tradeoffs. Paying additional origination points upfront sometimes reduces the note rate. On a 9-month deal, the math rarely favors paying extra points to reduce rate; run the numbers for your specific hold period.
- Short-term nature amplifies rate sensitivity. On a 12-month loan at 12%, a $250,000 balance costs $30,000 in interest. Budget that cost into your ARV (After Repair Value) analysis before committing to the deal.
LTV Ratios: How Lenders Size the Loan
Loan-to-Value (LTV) is the loan amount divided by the property's current appraised value. Hard money lenders typically lend between 60% and 75% LTV on the as-is value. On a property appraised at $200,000, that translates to a maximum loan of $120,000 to $150,000.
For fix-and-flip projects, many lenders also underwrite to ARV, the estimated value after renovations are complete. ARV-based lending is typically capped at 65% to 70% of ARV. If a property has an ARV of $350,000, a lender offering 65% ARV might advance up to $227,500 to cover both acquisition and renovation costs.
Key LTV considerations for investors:
- A lower LTV (60% or below) often unlocks better rates and fewer lender restrictions on draw schedules.
- Higher LTV requests increase lender risk and frequently require stronger borrower credentials or additional collateral.
- Lenders conducting their own appraisal or BPO (Broker Price Opinion) may value the property more conservatively than your purchase price suggests. Know the comparable sales before submitting.
Origination Fees and Points
Origination fees on hard money loans are expressed in points, where one point equals 1% of the loan amount. The standard range is 1 to 4 points, though some bridge-focused lenders charge up to 5 points on complex deals or lower-credit scenarios.
On a $200,000 loan:
- 2 points = $4,000 due at closing
- 3 points = $6,000 due at closing
Origination fees are typically deducted from loan proceeds at closing, so plan accordingly when structuring your acquisition and renovation budget. A lender quoting a $250,000 loan at 3 points will fund $242,500 net if fees are withheld.
When comparing lenders, convert all costs to an annualized effective rate so you are comparing apples to apples. A lender charging 11% with 2 points on a 12-month loan has a higher effective cost than one charging 12% with 1 point on the same term.
Other Fees to Review Before Closing
Beyond interest and origination, hard money loan agreements often include several additional charges. Request a full fee schedule from any lender before submitting an application.
Common fees to verify:
- Underwriting or processing fees: Flat fees ranging from $500 to $1,500 that cover document review and file preparation.
- Appraisal fees: Hard money lenders typically order their own appraisal, which the borrower pays. Expect $400 to $800 for residential properties, more for commercial.
- Draw inspection fees: On renovation loans, each fund draw may require a site inspection costing $150 to $300.
- Extension fees: If the project runs long and you need to extend the loan term, lenders typically charge 0.5% to 1.5% of the outstanding balance per extension period.
- Prepayment penalties: Some hard money lenders require a minimum interest period (often 3 to 6 months), meaning paying the loan off early does not eliminate those interest charges.
Qualifying for a Hard Money Loan
Because the underwrite centers on the asset, qualification is faster and less documentation-intensive than a conventional mortgage. That said, lenders are not indifferent to borrower quality.
What lenders typically evaluate:
- Property value and condition. The collateral must support the LTV requested. Lenders decline properties with severe structural issues, environmental liens, or title problems.
- Borrower experience. First-time investors may face lower maximum LTV, higher rates, or requirements to work with a licensed contractor. Documented track records on prior flips or rentals improve terms.
- Exit strategy. Lenders want a credible repayment plan. Specifying whether you plan to sell, refinance, or lease the property affects how lenders assess risk.
- Reserves. Many lenders require liquid reserves equal to 3 to 6 months of loan payments. This demonstrates you can carry the loan if the project timeline extends.
- Credit score. Credit is secondary to collateral, but scores below 600 narrow the lender pool and typically result in stricter terms. Many hard money lenders work with scores in the 620 to 680 range without significant penalty.
The Application Process
Most hard money lenders can issue a term sheet within 24 to 48 hours and close within 5 to 10 business days when documentation is complete. To move at that pace, have the following ready before you contact lenders:
- Signed purchase agreement or property details if pre-approval
- Property address and current photos
- Renovation scope and cost estimate (contractor bids preferred)
- ARV comparables from a local agent or appraiser
- Entity documents if purchasing through an LLC
- Prior flip or rental history if applicable
Shop at least two or three lenders. Local and regional hard money lenders often move faster than national platforms and may offer more flexibility on draw schedules. National lenders sometimes have more standardized programs with transparent rate tables.
Deciding Whether Hard Money Fits the Deal
Hard money makes sense when speed or property condition disqualifies conventional financing, and when the deal margin absorbs the cost. A rough test: if your projected net profit after all costs (purchase, renovation, carrying costs, sales commissions, and loan fees) exceeds 15% to 20% of ARV, the deal economics likely support a hard money loan.
If the margin is thin, consider whether a longer timeline and conventional financing improve the outcome, or whether the deal itself needs renegotiation on the purchase price before financing type matters.
For investors moving toward a portfolio of rental properties, hard money works as a short-term acquisition and renovation tool before refinancing into a DSCR loan at a lower long-term rate. That bridge-to-permanent structure is one of the most common paths experienced investors use to scale.
