- A hard money loan is a short-term loan from a private lender or company, secured by the property you are buying and approved primarily on the property’s value. It costs more than a bank loan, with a higher rate plus points, and the terms are for months rather than years. Investors use it to buy and fix a property quickly, then sell or refinance to pay it off.
What is a hard money loan?
A hard money loan uses real assets as collateral instead of relying on the borrower’s financial history. Lenders are private individuals or companies that make these loans as a business. The property you buy is usually the collateral; some lenders accept other real estate you own.
Hard money and private money are different things. Hard money lenders make short-term loans as a business; a private lender can be anyone with cash.
Hard money loan vs. a bank mortgage
A bank looks mostly at your credit and income, while a hard money lender looks mostly at the property and your plan for it.
| Hard money loan | Bank mortgage | |
|---|---|---|
| Lender | A private lender or company | A bank or credit union |
| Approval requires | The property’s value and your plan to pay it off | Your income, credit and the appraisal |
| Closing speed | Faster than a bank | Slower, with a longer loan review |
| Term | Months | Many years |
| Cost | Higher rate, plus points and fees | Lower rate |
| Properties that need a lot of repairs | Often pays for the repairs too | Often won’t lend until completion of repairs |
How a hard money loan works
- The lender looks at the property’s value today and its after-repair value (ARV), plus your plan to pay the loan off.
- It lends a share of the price, and often the rehab, then you pay interest and points. You pay the loan off when you sell or refinance.
| Step | What happens | Example figure |
|---|---|---|
| 1. Find the deal | You put a property under contract | Purchase price |
| 2. Apply | The lender reviews you, the property and your rehab plan | Rehab budget |
| 3. Value check | The lender orders a broker’s price opinion (BPO) or appraisal | As-is value and ARV |
| 4. Close | You pay points and fees; the lender funds its share | Loan amount, points |
| 5. Rehab | You complete the scope of work the lender reviewed | Rehab spent |
| 6. Payments | You make payments on the terms you agreed | Monthly payment |
| 7. Payoff | You sell or refinance and repay the balance | Total cost of the loan |
A hard money lender will often fund a house that needs major repairs, when a bank won’t lend on it in its current condition.
How much does a hard money loan cost?
Hard money loan rates are expensive. But since these are short-term loans, they can still be absorbed with room for a healthy profit. A hard money loan costs an interest rate, points paid at closing, and fees, and the table below breaks down each cost.
| Cost | Definition | What to ask the lender |
|---|---|---|
| Interest rate | Yearly rate on the loan | Your rate on this deal, in writing |
| Points | Upfront fee, a share of the loan amount, paid at closing | How many points, and whether they change with your experience |
| Loan to value or loan to cost | Share of the price or project the lender covers | Which one they use and the highest share they lend |
| Down payment | The part of the price and rehab the lender does not cover, paid by you in cash | How much cash you need at closing, and whether they fund all of the rehab |
| Rehab funding | Whether the loan covers the rehab | How and when the rehab money is paid out |
| Term | How long you have to repay | What happens if the project runs late |
| Prepayment penalty | Fee for paying off early | Whether there is one |
| BPO or appraisal | Value check on the property, paid by you | Which one they order and what it costs |
| Other fees | Title, application, inspection, document processing | The full list of fees, in writing |
As far as a down payment, the lender covers only part of the price and rehab, so you’ll need to cover the rest in cash. You can use savings, a partner, a loan from friends or family, or another property pledged as extra collateral.
Loan to value (LTV) is the ratio lenders use to compare the size of the loan to the asset’s appraised value. Loan to cost (LTC) compares the size of the loan to the cost of building or developing a project. After-repair value (ARV) is the value of the property after all repairs are made. Ask each lender which of these they use to decide the loan amount.
While each hard money lender is different, normally, real estate loan terms look like this:
- Loan to value/loan to cost: As of November 2026, LTV ratio between 60% and 75%, according to American Heritage Lending; 75% to 90% of the total project cost, according to Unitas Funding
- Interest rate: 8% to 15% annually, according to Herring Bank
- Points: 2-5, according to Herring Bank
- Loan term: 6-36 months, according to Herring Bank
And, to reiterate, what each hard money lender is willing to do is different. Some, for instance, may be willing to use other assets (say, another property) to “cross-collateralize” a loan. This type of flexibility is another advantage of hard money lending.
Other hard money lenders may max out at 65% LTV, while some may increase to 85%. Remember to clarify whether a lender is referring to the LTV (what the property is worth) or the LTC (how much money you will be putting into the property).
Regardless, you will almost always need to find a way to raise the down payment. Potential sources include savings, a partnership, or a personal loan from friends or family. In certain cases and with some lenders, another free and clear property can be cross-collateralized.
The bottom line is that hard money lenders are generally more flexible than banks. Real estate investors have a better chance of negotiating adjustments to the terms or repayment schedule with a hard money lender than they would with a bank.
Pros and cons of a hard money loan
Hard money is fast and the lender cares less about your income and credit than a bank does, but it costs more and is riskier.
- Pros: Fast, lighter loan review than a bank, open to borrowers who cannot get a bank loan, open to properties that need a lot of work, a backup when a bank loan falls through.
- Cons: Higher rate and fees, the property is the collateral, short repayment period, and some lenders are mainly after fees.
| Pros | Cons |
|---|---|
| Closes fast | Higher interest rate and fees |
| Lighter loan review than a bank | Your property is the collateral |
| Open to borrowers who cannot get a bank loan | Short repayment period |
| Lends on properties that need a lot of work | Some lenders are mainly after fees |
| A backup if a bank loan falls through while under contract |
Risks of a hard money loan
- If you cannot pay the loan off, the lender can take the property, because it is the collateral.
- You sell or refinance later than planned, or the sale or refinance falls through, and the loan comes due before you have the money to pay it off.
- The lender may not cover the full cost of the deal, so you have to pay the rest in cash. The Rookie episode This is How “Hard Money” Loans Work (Banks for Investors) shares how one investor’s lender funded less than the repairs cost, so the investor had to cover the difference.
- You may get hit with fees or a funding process you didn’t know about, if you don’t ask the lender about them before you sign.
When a hard money loan makes sense
- A hard money loan is a good option if you can pay it off within months through a sale or refinance. It also fits people who don’t have a regular paycheck or who have credit problems, because the lender looks mostly at the property.
| Use | How hard money fits | How investors pay it off | Read more |
|---|---|---|---|
| Fix and flip | Buy and rehab fast, with the loan based on the property and its ARV | Sale | House Flipping Calculator |
| BRRRR | Buy and rehab before the property qualifies for a long-term loan | Cash-out refinance | The Beginner’s Guide to BRRRR Financing with Other People’s Money |
| Buy and hold rental | Short-term money to buy or fix up a rental | Refinance into a long-term loan | How Investors Can Use Hard Money Loans for Rentals |
| A bank loan falls through | Close on time while under contract | Refinance once a bank will lend | none |
Fix and flip
Hard money fits a house that needs more repairs than a bank will pay for. The investor pays off the loan by selling the house after fixing it up.
BRRRR
With BRRRR, the investor pays off the hard money loan by refinancing into a regular long-term loan after the house is fixed up and rented. If the refinance falls through, the investor can’t pay off the hard money loan.
Buy and hold rental
Investors can use hard money to buy or fix up a rental, then refinance into a regular long-term loan. How Investors Can Use Hard Money Loans for Rentals.
When a bank loan falls through
Hard money is a backup plan. If a bank loan falls through after you’ve already agreed to buy a house, a hard money loan can still get you to closing on time.
When to skip hard money
Hard money is a bad choice when you’re buying a regular house that needs little work, or when you don’t have a clear plan to pay the loan off.
Where to find a hard money lender
Check out a hard money lender as carefully as you’d check anyone you hire for your team, and start by asking people you know for referrals.
| Where to look | Best for | What you get |
|---|---|---|
| BiggerPockets Lender Finder | Any market, any strategy | Investor-focused lenders matched to your deal |
| BiggerPockets forums | Recommendations for your market | Lender names from investors who have closed with them |
| Local real estate investors association or meetup | Building a long-term team | Referrals from investors, agents and brokers who use hard money |
| Other investors and agents in your market | A quick shortlist | Who to use and who to avoid |
Use the BiggerPockets Lender Finder
With the Lender Finder, you enter your location and purchase price, and it shows lenders who work with investors, with ratings and reviews. It’s free to use.
Ask in the BiggerPockets forums
To to write a good forum post asking for a lender, say where you’re buying, what kind of property, what you plan to do with it, how much you need to borrow, and when you need to close.
Go to a local investors association or meetup
The best place to look for hard money lenders is your local real estate investors association. Remember, if they’ve done right by another investor, they are likely to do right by you.
Ask investors and agents who buy in your area
Ask for referrals. Investors and agents who already buy in your area know which lenders are good and which to avoid.
Questions to ask a hard money lender before you commit
- What is the rate, and how many points do you charge?
- Can I see all the fees in writing?
- Is the loan based on LTV, LTC or ARV?
- Do you fund the rehab, and how and when do I receive the money?
- How fast can you close?
- Is there a prepayment penalty?
- Who is my one point of contact?
- Compare two or three lenders before you commit.
How To Get a Hard Money Loan
Here’s how to get a hard money loan:
Build lender relationships before you make offers
Get a conditional approval letter
Apply
Let the lender check the property
Close
| What the lender checks | What to bring |
|---|---|
| You | Loan application, two years of tax returns, two months of bank statements, driver’s license; the lender pulls your credit |
| Your other properties | A schedule of the real estate you own |
| The property | The lender orders a BPO or appraisal and reviews sales or rental comps |
| The project | Your scope of work and rehab budget |
| Your exit | How you will pay the loan off: sale or refinance |
Alternatives to Hard Money Loans
You can wait longer than a hard money loan takes, or you want a lower rate.
| Option | How it works | Worth a look when |
|---|---|---|
| HELOC | A line of credit against the equity in your home | You have equity and accept a lien on your home |
| Cash-out refinance | A new, larger mortgage on your home that pays out the difference in cash | You owe little on your home or rates are better now |
| Home equity investment products | Cash from your home’s equity, with no repayment right away | You want flexibility on when you pay it back |
| Private money, including family or friends | A private loan on terms you agree together | You want more lenient terms and have people who will lend |
If you’re unsure about hard money lending and its associated risks, you might be wondering if there are any alternatives to hard money loans for investors. There are several other options you can consider if you don’t want to work with a hard money lender, including:
Home equity line of credit (HELOC)
With a HELOC, you can use the equity you have in your home as a line of credit without actually having to pull the equity out of your home.
Cash-out refinance
A cash-out refinance when you actually pull out the equity you’ve built up in your home and use it to purchase an asset. It’s basically taking out another mortgage or increasing the mortgage you already have on your home.
Home equity investment products
Home equity investment products are another alternative to hard money lending. These products also allow you to use the equity you’ve acquired in your home, but you won’t have to worry about paying the money back right away.
Private money, including family or friends
Family and friends with extra cash may be willing to loan you money to purchase a real estate investment property. If you’re a first-time investor, this can be an especially appealing route, as you can negotiate the best terms for you. It’s likely that you can get a better interest rate from friends and family than you can from a traditional lender or one who offers hard money loans.
Next steps
- Find a lender: Lender Finder
- Estimate the rehab: Rehab Cost Estimate Calculator.
- Get ready to apply: 10 Important Terms To Know When Applying For A Hard Money Loan.
- Plan how the rehab money gets paid out: The Hard Money Loan Funding Process: A Guide for Rehabbers.
- Build the rest of your team: The Agent Finder.
FAQs
- What is the average interest rate on a hard money loan? As of November 2026, hard money loan interest rates range from 8% to 15%, according to Herring Bank.
- How long do you have to pay back a hard money loan? Hard money loans are short-term. Most are written for months rather than years, and most borrowers pay them off when they sell or refinance the property. Ask the lender what happens if the project runs late. Plan your exit before you borrow, because a late sale can get expensive.
- What is the typical down payment for a hard money loan? According to Lending Tree, as of November 2026, the average down payment on a hard money loan typically ranges from 20% to 35% of the property’s purchase price or ARV. The down payment depends on how much of the price and repairs the lender covers, which varies by lender, deal, and your experience, and that you pay the rest in cash at closing. Ask each lender how much they’ll lend and how much cash they’ll need at closing, in writing.
