Fix-and-flip investors routinely lose deals to cash buyers or other investors with faster financing. Hard money loans exist specifically to close that gap. Understanding how they are structured, what they actually cost, and when the numbers justify using one is the difference between a profitable flip and a break-even headache.
What a Hard Money Loan Is
A hard money loan is a short-term, asset-based loan secured by real property. The lender underwrites primarily against the property's value — specifically, the after-repair value (ARV), meaning the estimated market value once renovations are complete — rather than the borrower's income, debt-to-income ratio, or credit score.
This distinction matters practically. A conventional mortgage lender will pull two years of tax returns, verify employment, and take 30 to 60 days to close. A hard money lender may approve and fund in 5 to 10 business days, sometimes fewer for repeat borrowers.
Hard money loans are most commonly used for:
- Fix-and-flip acquisitions
- Bridge financing between purchase and a long-term refinance
- Properties that do not qualify for conventional financing due to condition
- Time-sensitive purchases where speed is the competitive advantage
How Hard Money Loans Are Structured
The core loan terms vary by lender, market, and borrower experience, but the typical structure looks like this:
Loan-to-value (LTV): Most hard money lenders cap loans at 65-75% of ARV, or 80-90% of the purchase price on discounted acquisitions. Some lenders also offer loan-to-cost (LTC) structures that include renovation draws.
Interest rates: Rates typically range from 10% to 15% annually, though experienced investors with a track record may negotiate toward the lower end. Some lenders charge interest only on drawn funds during a renovation draw schedule.
