Question 1

How is hard money different from a bank loan?

Accepted Answer

Hard money focuses on the property as collateral rather than your income and employment history. Banks take 30 to 45 days and require extensive documentation. Hard money can close in a week with minimal paperwork. The trade-off is higher rates and shorter terms.

Question 2

What loan-to-value ratios do hard money lenders offer?

Accepted Answer

Most hard money lenders cap at 65% to 80% LTV on the as-is value, or 70% to 75% of the after-repair value for rehab projects. Higher leverage is available for experienced borrowers with a proven track record.

Question 3

Are hard money loans only for flippers?

Accepted Answer

No. Hard money works for any situation where speed, flexibility, or unconventional circumstances require alternative financing. Bridge loans, land acquisitions, commercial purchases, and even some primary residence transactions can use hard money.

Question 4

What does "points" mean in hard money lending?

Accepted Answer

Points are upfront origination fees charged at closing. Each point equals 1% of the loan amount. Hard money lenders typically charge 1 to 3 points. On a $300,000 loan, 2 points would be $6,000 due at closing.

Question 5

Can I negotiate hard money terms?

Accepted Answer

Everything is negotiable, especially if you have a strong deal and repeat business with the lender. Rates, points, terms, and draw structures can all be adjusted. Bringing a larger down payment or more experience gives you more negotiating power.

Question 6

What is the minimum hard money loan amount?

Accepted Answer

Most lenders have minimums between $50,000 and $150,000. Smaller loans are less profitable for lenders, so the terms on low-balance hard money loans may not be as competitive.

Question 7

Do hard money lenders require an appraisal?

Accepted Answer

Some require a full appraisal, others accept a BPO (broker price opinion) or desktop valuation to save time and cost. For larger loan amounts, a full appraisal is standard. The valuation method affects how quickly you can close.

Question 8

Can I get hard money for vacant land?

Accepted Answer

Land-only hard money is available but comes with lower LTV ratios, usually 50% to 60%, and higher rates. Land is considered riskier collateral because it does not generate income. Entitled land with approved plans gets better terms.

Question 9

What exit strategy do hard money lenders want to see?

Accepted Answer

Every hard money lender wants a clear plan for repaying the loan. Common exits include selling the property after renovation, refinancing into permanent financing, or completing a lease-up and refinancing into a DSCR loan.

Question 10

How do I find a reliable hard money lender?

Accepted Answer

Work with a mortgage professional who has relationships with multiple hard money sources. This gives you access to competitive terms and avoids predatory lenders. Check for licensing, reviews, and ask for references from other investors.

Question 11

Can hard money be used for commercial properties?

Accepted Answer

Yes. Commercial hard money is common for retail, office, industrial, and mixed-use acquisitions. Terms may differ from residential hard money, with higher minimums and different LTV calculations based on the commercial use.

Question 12

What documentation do I need for a hard money loan?

Accepted Answer

Typically a property address, purchase contract, rehab scope and budget, proof of funds for the down payment, government ID, and entity documents if borrowing through an LLC. The documentation is far lighter than bank lending.

Question 13

Is interest on hard money loans tax deductible?

Accepted Answer

Interest on business-purpose hard money loans used for investment properties is generally deductible as a business expense. Consult your CPA since the deductibility depends on how the property and loan are structured.

Question 14

What happens during the underwriting process?

Accepted Answer

Hard money underwriting focuses on the property value, deal structure, borrower experience, and exit strategy. Credit may be pulled but is less of a factor. The entire underwriting process can take 1 to 5 days.

Question 15

Can I refinance a hard money loan into a conventional mortgage?

Accepted Answer

Yes, and this is one of the most common exit strategies. Buy with hard money for speed, stabilize the property, then refinance into a conventional, DSCR, or commercial loan at a much lower rate.

Question 16

Do hard money loans have balloon payments?

Accepted Answer

Yes. Hard money loans are structured as interest-only with a balloon payment at the end of the term, meaning the entire principal balance is due when the loan matures. Your exit strategy determines how you pay off the balloon.

Question 17

What is cross-collateralization in hard money?

Accepted Answer

Some lenders allow you to pledge equity in other properties to reduce the cash needed for a new deal. This can lower your out-of-pocket costs but puts additional properties at risk if you default.

Question 18

Can foreign nationals get hard money loans?

Accepted Answer

Yes. Hard money lenders are more flexible than banks with foreign nationals since the focus is on the property, not personal credit history. Expect higher down payments, typically 30% to 40%, and additional documentation requirements.

Question 19

What is the difference between first and second lien hard money?

Accepted Answer

A first lien hard money loan is the primary mortgage on the property. A second lien is behind an existing first mortgage. Second lien hard money has higher rates because the lender is in a riskier position if you default.

Question 20

How do I calculate if a hard money deal makes sense?

Accepted Answer

Add up all costs: purchase price, renovation, points, interest payments, closing costs, holding costs, and selling costs. Subtract from your expected sale price. If the profit margin is 15% or more after all expenses, the deal likely makes sense.

Question 21

How does the draw schedule work on a hard money rehab loan?

Accepted Answer

The lender creates a draw schedule based on your approved scope of work, usually broken into 3 to 6 phases. You complete a phase, request a draw, and the lender sends an inspector. Once the work is verified, funds are wired within 3 to 5 business days. Most lenders hold 10% of the total rehab budget as a final holdback until project completion.

Question 22

What are extension fees on a hard money loan and how much do they cost?

Accepted Answer

If you cannot sell or refinance before the loan matures, you can request an extension. Fees typically run 0.5% to 1% of the loan balance per extension period, usually 3 to 6 months. Some lenders charge a flat fee. Extensions are not guaranteed -- the lender evaluates the deal status before approving.

Question 23

What is cross-collateralization and when would I use it?

Accepted Answer

Cross-collateralization means pledging equity in other properties you own to reduce the cash needed on a new deal. If you have a free-and-clear rental worth $200,000, a lender might count that equity toward your down payment on a flip. The risk is that both properties are now securing the loan -- if you default, the lender can go after both.

Question 24

What happens if a draw inspection fails?

Accepted Answer

If the inspector finds incomplete or substandard work, the draw is denied until the issues are corrected. You will not receive funds for that phase until the work meets the approved scope. This delays your project timeline and ties up your working capital. Keeping your contractor accountable to the scope prevents this.

Question 25

Can I get a hard money loan on a property that needs environmental remediation?

Accepted Answer

Most hard money lenders avoid properties with known environmental issues like underground storage tanks, asbestos, or contaminated soil. The remediation costs and timeline create too much uncertainty. Some specialized lenders will consider it, but expect significantly lower leverage and higher rates.

Question 26

What is an interest reserve on a hard money loan?

Accepted Answer

An interest reserve is a portion of the loan set aside to cover monthly interest payments during the project. Instead of making monthly payments out of pocket, the reserve covers them automatically. This frees up your cash for renovation costs. The interest reserve is deducted from your net loan proceeds at closing.

Question 27

How do hard money lenders handle cost overruns on a rehab project?

Accepted Answer

The lender is not obligated to fund cost overruns beyond the approved budget. Some will allow a change order process to increase the rehab holdback, but you need to bring additional funds to cover the difference. Including a 10% to 15% contingency in your original scope protects you.

Question 28

What is the difference between a first-position and second-position hard money loan?

Accepted Answer

A first-position loan is the primary lien on the property -- if you default, this lender gets paid first. A second-position loan sits behind the first lien and carries more risk. Second-position hard money rates are 2% to 5% higher than first-position because the lender could be wiped out in a foreclosure.

Question 29

Can I get a hard money loan on a property that is currently occupied?

Accepted Answer

Occupied investment properties can be financed with hard money, but the lender will want to know the tenant situation. If you need to vacate the property for renovation, they will consider the eviction timeline and costs. Owner-occupied properties trigger additional regulations that most hard money lenders prefer to avoid.

Question 30

What should I look for in a hard money term sheet before signing?

Accepted Answer

Review the rate, points, term length, extension fees, draw process timeline, prepayment penalty, default provisions, recourse vs non-recourse terms, and any junk fees. Pay special attention to the interest calculation method -- some charge interest on the full loan amount including undrawn rehab funds, which costs you more.

Hard Money Loans: Fast and Flexible Financing for Real Estate Investors

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Key Features of Hard Money Loans:

Who Can Benefit from Hard Money Loans?

Types of Hard Money Loans

1. Fix-and-Flip Loans

2. Bridge Loans

3. Land Loans

4. Construction Loans

5. Commercial Hard Money Loans

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