Hard Money Loans 101: What Every Flipper Needs to Know

Hard money lending is the primary financing vehicle for fix-and-flip deals. Here's how it works and what to watch for.

Hard money loans are short-term, asset-based loans secured by the property being purchased. Unlike traditional mortgages, they're issued by private lenders or funds and are evaluated primarily on the deal's merit rather than the borrower's creditworthiness.

Typical terms include 12-18 month durations, interest rates between 10-15%, origination fees of 1-3 points, and loan-to-value (LTV) ratios of 65-75% of the purchase price or 65-70% of the ARV. Some lenders also provide renovation funding, disbursed in draws as work is completed.

The speed of hard money is its greatest advantage — closings can happen in 7-14 days compared to 30-45 for conventional loans. This speed is critical in competitive markets where cash-like offers win deals.

When evaluating hard money lenders, look beyond the headline rate. Factor in points, draw fees, extension penalties, prepayment terms, and the lender's track record of actually funding deals on time. A lender who's 2% cheaper but takes 3 weeks longer to close will cost you deals.

For lenders, accurate property valuations are essential for risk management. A reliable ARV ensures the collateral supports the loan amount, which is why many hard money firms are turning to AI-powered valuation platforms for their underwriting process.