Hard money loans get their name from the collateral that secures them — hard assets (real property) rather than the borrower's creditworthiness or income. They're a specialized financing tool used primarily by real estate investors who need speed, flexibility, or access to deals that conventional financing won't touch.
What Makes Hard Money Different
In conventional lending, you're underwritten primarily on your ability to repay — income, credit score, debt ratios. In hard money lending, the property is the primary underwriting criterion. If there's sufficient equity in the property relative to the loan amount, many hard money lenders will fund the deal even if your personal financials wouldn't qualify you for a bank loan.
This makes hard money uniquely accessible — and uniquely expensive.
Who Hard Money Lenders Are
Hard money lenders are typically private individuals, small investment funds, or specialty lending companies — not banks. They're lending their own capital or pooled investor capital, which gives them flexibility to make decisions quickly without institutional committees or regulatory constraints.
Typical Terms
- Rates: 10 to 14%+ per year, interest only
- Points: 1 to 3 origination points paid upfront
- Term: 6 to 24 months
- LTV: 60 to 70% of as-is value
- Close time: 5 to 14 days
- Documentation: Minimal — property valuation and basic borrower info
Common Use Cases
- Fix and flip — acquire distressed residential or commercial property, renovate, sell
- Bridge financing — hold a property while arranging permanent financing
- Distressed or non-warrantable properties conventional lenders won't touch
- Time-sensitive purchases where conventional timelines don't work
- Borrowers with credit challenges who have significant equity
The Cost Reality
Hard money is expensive relative to conventional financing. On a $500,000 loan at 12% with 2 points, you're paying $6,000 at closing and $5,000 per month in interest. Over a 12-month hold, the total interest cost is $60,000 plus points. The deal needs to generate enough profit to absorb that cost and still make sense.
Run your exit scenario carefully: what does the property need to sell for (or refinance to) to cover your all-in cost including hard money interest?
Exit strategy is non-negotiable. Hard money lenders fund deals, not hopes. They want to see a concrete plan for repayment: a signed purchase agreement, a realistic renovation timeline, or a commitment letter from a takeout lender. Coming in with a vague plan is the fastest way to get declined.
Hard Money vs Bridge Loans
The terms are often used interchangeably, but there are distinctions. Bridge loans tend to be more institutional, with lower rates and more underwriting requirements. Hard money is typically more private, faster, and more flexible — but more expensive. The right choice depends on your deal, your timeline, and your credit profile.
Have questions about your deal?
No commitment, no pressure. We'll give you honest guidance on your options.
Talk to KQT AdvisorsKQT Advisors is a commercial loan broker and does not make lending decisions. All loan approvals, rates, and terms are subject to lender underwriting. Information in this article is for general informational purposes only.
Related Articles