hard money

Hard Money 101: How Investor Loans Actually Work

6 min read

Hard money loans confuse most first-time investors because they don't behave like a mortgage. There's no 30-year amortization, no W-2 income check, and no 45-day underwriting slog. They're short-term, asset-based loans built for one thing: getting a deal closed fast so you can flip it, refinance it, or wholesale it.

This guide breaks down exactly how they work, what they cost, and when using one actually makes you money.

What a hard money loan actually is

A hard money loan is short-term financing (typically 6–18 months) secured by the property itself — the "hard" asset. The lender cares less about your credit and more about the deal: what you're buying it for, what it's worth after repair (ARV), and how much rehab it needs.

Because the collateral is the deal, approvals happen in days, not weeks. That speed is the entire product.

The four numbers every lender looks at

Purchase price — what you're paying for the property today.

Rehab budget — realistic construction costs to bring it to market.

ARV (After-Repair Value) — what the finished property will sell or appraise for.

LTC / LTV — Loan-to-Cost (usually 85–90%) and Loan-to-Value against ARV (usually 65–75%).

If your deal fits inside those ratios, you get funded. If it doesn't, no amount of credit or income fixes it.

What it costs

Interest rate: 9.5%–12% (interest-only, monthly)

Points (origination): 1–3% of the loan, paid at closing

Closing costs: appraisal, title, legal — usually $2K–$5K

Term: 6, 9, or 12 months, sometimes extendable

Example: A $200K loan at 11% + 2 points costs ~$1,833/month in interest and $4,000 in points at closing. On a 6-month flip that's ~$15K in total financing cost — a rounding error against a $50K–$80K profit.

When hard money is the right tool

Distressed properties banks won't touch (foreclosures, cash-only listings, gut rehabs)

Speed-sensitive deals (auctions, off-market wholesale contracts)

Fix-and-flip projects where you'll exit in under 12 months

BRRRR deals where you refinance into a long-term loan after stabilizing

When it's the wrong tool

Long-term buy-and-hold with no clear refinance plan

Deals with thin margins (interest eats the profit)

Owner-occupied homes (illegal in most states with hard money)

The bottom line

Hard money isn't expensive — it's *fast*. If speed lets you win a deal a slow buyer can't touch, the cost is trivial. If you're using hard money because you can't qualify for a real mortgage on a deal that needs a real mortgage, you're using the wrong tool.

Run the numbers. If the deal works with hard money's cost baked in, take it. If it doesn't, walk away.

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