Hard Money Lending
Short-term, asset-backed real estate loans from private lenders that prioritize property value over borrower creditworthiness, enabling fast closings.
What is Hard Money Lending?
Hard money lending refers to short-term loans secured by real property and funded by private investors or private lending companies rather than banks or conventional mortgage lenders. The key distinction is underwriting focus: hard money lenders primarily evaluate the collateral (the property's current or post-renovation value) rather than the borrower's credit score, income, or employment history. This makes hard money loans accessible to real estate investors who may not qualify for conventional financing or who need to close quickly. Loan terms typically range from 6 to 24 months, with interest rates of 8%–15% or higher and origination fees of 1%–3% (points). Loan-to-value (LTV) ratios are typically 65%–75% of the property's as-is value or after-repair value (ARV). Hard money lending is most commonly used by fix-and-flip investors, house flippers, and developers who need bridge financing to acquire and renovate a property before refinancing into conventional long-term debt or selling.
Example
A fix-and-flip investor identifies a distressed property priced at $150,000 with an estimated after-repair value (ARV) of $240,000. A local hard money lender offers a loan of $168,000 (70% of ARV) at 11% interest-only with 2 origination points, closing in 7 days. The investor uses the loan to purchase and renovate the property over 5 months, then sells it for $238,000—repaying the hard money loan and earning an estimated $35,000–$45,000 net profit. The speed and collateral-based underwriting were critical since the investor had a recent credit event that would have disqualified them for bank financing.
Source: Investopedia — Hard Money Loan