Hard money loans: how they work and what each month of delay costs
Reviewed by the Editorial Team · Updated October 18, 2026 · 9 min read
A hard money loan is short-term financing from a private lender, secured by the property and sized on its value rather than your income. It is built for investors who buy, renovate and then sell or refinance within 6–24 months. This guide covers investor loans, not loans on a home you live in.
Key takeaways
A hard money loan is short-term, asset-based financing from a private lender, typically sized at up to 65–75% of after-repair value and running 6–24 months.
In this illustration, a $200,000 loan at 11.00% costs $1,833 a month in interest plus $4,000 in points, or $14,998 over six months.
If the sale slips to twelve months, the same loan costs $25,996, so each month of delay comes straight out of the flip's profit.
Business-purpose loans are exempt from Truth in Lending under Regulation Z, so the contract terms and a written exit plan matter more than usual.
Rate
Commonly 8–15%, interest-only
Points
Commonly 1–5% at closing
Term
Typically 6–24 months
Loan size
Up to 65–75% of after-repair value
Prime rate today7.00%Fed H.15 via FRED · Oct 27, 2026. Hard money is priced well above it.
$200,000 for 6 months$14,998Interest plus 2 points at an illustrative 11.00%. 6, 9 and 12 months ↓
How a hard money loan works
A hard money loan is short-term financing from a private lender, secured by the property you are buying. The lender underwrites the deal — price, repair budget and finished value — more than your income. Payments are usually interest-only, with the balance due at sale or refinance.
Collateral: a lien on the property, usually in first position
Sizing: up to 65–75% of after-repair value (ARV)
Term: typically 6–24 months, repaid in one lump sum
Speed: typically a much faster close than a bank loan
ARV explained: how lenders size the loan
ARV is the price the finished property should sell for, estimated from recent comparable sales. Lenders lend a share of it, commonly 65–75%. Many lenders also cap the loan against the total of price plus repairs, so check which limit binds first.
Largest loan on a flip with a $300,000 after-repair value
ARV explained: how lenders size the loan
Loan as share of ARV
Largest loan
Cushion under ARV
65%
$195,000
$105,000
70%
$210,000
$90,000
75%
$225,000
$75,000
A $200,000 loan against a $300,000 ARV is about 67%, inside the common range. The loan rarely covers everything: points, closing costs and your equity in the deal come out of your own cash.
Hard money vs. private money
The two names overlap, and lenders use them loosely. In general, hard money comes from a company that lends to strangers as a business, while private money comes from an individual who lends on negotiated terms, often to someone they know.
What a hard money loan costs when a flip runs late
Suppose you borrow $200,000 to buy and renovate a house you plan to flip. Prime is 7.00%, so an illustrative rate of prime + 4 percentage points is 11.00%, inside the 8–15% lenders commonly quote. The loan also carries 2 points at closing.
Worked exampleA $200,000 hard money loan for a flip
What a hard money loan costs when a flip runs late
Months until you sell
Interest
Points2% at closing
Total cost
6 months
$10,998
$4,000
$14,998
9 months
$16,497
$4,000
$20,497
12 months
$21,996
$4,000
$25,996
Holding cost per month$1,833interest-only at an illustrative 11.00%, before taxes, insurance and utilities
Cost if the sale slips to 12 months$25,996vs $14,998 at 6 months — every month of delay comes out of the profit
Illustrative rate: prime 7.00% (Fed H.15, Oct 27, 2026) + 4 percentage points, inside the 8–15% range hard money lenders commonly quote; 2 points at closing. Extension fees, draw fees and default interest are excluded. Price a long-term loan
Interest alone is $1,833 a month. Six months costs $14,998 with the $4,000 in points, nine months $20,497 and twelve months $25,996. The points are paid once, so only the interest grows with time.
Moving the sale from month 6 to month 12 adds six more payments of $1,833. That is money out of your profit before taxes, insurance and utilities on the house, and before any extension fee.
Test the slow case
Run the deal at twelve months, not six. If the profit disappears when the sale slips, the margin is too thin for a loan that charges $1,833 for every month of delay.
Fees the cost table leaves out
The table counts interest and points only. Ask for the full fee schedule and look for these four items before you sign:
Extension fees: added charges if the sale runs past maturity
Draw and inspection fees: a charge each time repair funds are released
Default interest: a higher penalty rate after a missed payment or maturity
Prepayment terms: a minimum interest period on some loans, even if you repay early
When a hard money loan goes wrong
A hard money loan fails on the exit, not the rate, because every risk traces back to a sale or refinance that does not arrive before the loan matures. These are the four ways the plan breaks:
Maturity wall: the full balance is due on one date, ready or not
Costly delay: every extra month adds $1,833 in this example
Property at stake: default puts the house and your equity at risk
Fewer protections: business-purpose credit falls outside Truth in Lending
Regulation Z, 12 CFR § 1026.3(a), exempts credit extended primarily for a business or commercial purpose from its consumer-credit rules. A loan to buy a house for resale usually qualifies, so few federal protections apply and the contract terms govern. Owner-occupied hard money is rare and regulated.
Write the exit down
Name a primary exit (the sale) and a backup (a refinance) before you sign. Get the backup lender's requirements for the finished house, and set a date to switch plans while months of term remain, not days.
Hard money vs. DSCR, bridge and equity loans
These loans solve different timing problems. Hard money funds the buy-and-renovate stage of a flip, a DSCR loan funds the long-term hold, and bridge loans and equity borrowing use collateral you already own.
Four ways to finance a property deal
Hard money vs. DSCR, bridge and equity loans
Hard money loan
DSCR loan
Bridge loan
HELOC or cash-out on another property
Secured by
The property you are buying
The rental property
Your current home
Another property you own
Term
6–24 months
Long-term, typically 30 years
6–12 months
Long-term
Cost
High: rate 8–15% plus 1–5% in points
Above conventional investor-loan rates
Higher rate plus a 1–3% fee
Typically lower: mortgage or HELOC pricing
Qualifies on
The property, ARV and the exit plan
Rent against the payment, plus credit
Equity in your current home
Equity, income and credit on that property
Speed
Fast; lighter documentation
Slower: full appraisal and underwriting
Moderate
Slower: a bank timeline
Fits best
Buy-renovate-sell deals on a tight timeline
Holding a stabilized rental
Buying before selling a home
Investors with equity elsewhere and time to close
A flip kept as a rental typically refinances into a DSCR loan; the IRS explains rental reporting in Publication 527. Timing gaps on your own home call for a bridge loan, and a cash-out refinance on another property avoids hard money pricing but puts that property at risk.
Who a hard money loan fits
Hard money fits investors who have a clear margin on the deal and a defined exit inside the loan term. It is a tool for the buy-renovate-sell stage, not a way to finance a home you will live in.
Investors who must close faster than a bank can underwrite
Borrowers with imperfect credit and real equity in the deal
Anyone with a realistic plan to sell or refinance before maturity
Skip it for a home you will live in, a long-term rental, or any deal that only works if nothing slips. A conventional investment property loan costs less when speed does not matter.
Hard money loans: pros and cons
Pros
Closes much faster than a bank loan
Approval rests on the property and the exit plan
Can fund repairs, not just the purchase
Works for houses too rough for a mortgage
Cons
Commonly 8–15% interest plus 1–5% in points
Full balance due within 6–24 months
Few consumer protections on business-purpose credit
Default puts the property and your equity at risk
What hard money lenders look for
Lenders start with the property and the plan. They typically lend up to 65–75% of after-repair value, expect 20–30% in borrower equity, and want a repair budget, a scope of work and a believable exit.
Credit matters less than at a bank but is rarely ignored. Many lenders still check it, and a weak score or a first flip can mean a smaller loan, more points or more cash from you. A track record on similar projects often counts for more.
Many flippers screen deals with the 70% rule of thumb: offer no more than 70% of ARV minus repair costs. It is an investor guideline, not a lender requirement.
Requirements at a glance
Loan sized at up to 65–75% of after-repair value
Borrower equity or cash in the deal, commonly 20–30%
Rates commonly 8–15%, plus 1–5% in points at closing
Term of 6–24 months, with the balance due in one lump sum
A repair budget, scope of work and after-repair value estimate
A documented exit: a sale, or a refinance into a longer-term loan
A hard money loan is considered short-term, asset-based financing from a private lender, secured by real estate. It is a business-purpose loan, mainly for investors buying and renovating property, and not a conventional mortgage.
Underwriting rests on the property and the exit plan, and terms typically run 6–24 months.
What is the normal interest rate for a hard money loan?
Lenders commonly quote 8–15%, usually interest-only, plus 1–5% in points at closing. Rates vary by lender and deal, so this guide's example uses an illustrative 11.00%, which is prime (7.00%) plus 4 percentage points. On a $200,000 loan that is $1,833 a month in interest.
Is hard money lending a good idea?
Only when the deal still profits after the costs and the exit is firm. In our example, a $200,000 loan costs $14,998 over six months but $25,996 over twelve.
If the profit vanishes at twelve months, the loan is too expensive for that deal; for a long hold, a mortgage fits better.
What are the downsides of hard money loans?
The main downsides are cost and timing. Rates and points run well above a mortgage, the full balance is due within 6–24 months, and each month of delay adds $1,833 in our example.
Business-purpose credit also falls outside Truth in Lending, and a default can cost you the property.
How do you pay back a hard money loan?
Usually with interest-only payments each month, then the full principal in one lump sum when the term ends. The payoff normally comes from selling the property or refinancing into a longer-term loan, such as a DSCR or conventional investor loan. Some loans accrue interest until payoff instead, so check the structure.
How long do hard money loans last?
Terms are typically 6–24 months, long enough to buy, renovate and sell or refinance. Extensions are often available, but they usually add fees or interest.
In our example, a sale at six months costs $14,998 against $25,996 at twelve, so every month of term you use has a price.
How much do you need to put down on a hard money loan?
Many lenders want 20–30% in equity or cash in the deal. They typically lend up to 65–75% of after-repair value, so the loan leaves a gap you fund yourself.
Points, closing costs and any repairs the loan does not cover come on top. Terms vary by lender and track record.
What is the 70% rule for hard money loans?
It is a flipper's rule of thumb, not a lender rule: pay no more than 70% of the after-repair value minus repair costs. On a $300,000 ARV with $40,000 of repairs, that is $210,000 minus $40,000, or $170,000. The gap leaves room for financing costs, selling costs and profit.
Can you get a hard money loan with bad credit?
Often, yes, because the property and the exit plan count for more than the score. Many lenders still check credit, though, and a weak score can mean a smaller loan, more points or a larger cash contribution. Minimums vary by lender, and a strong deal with real equity helps most.
How much does a $200,000 hard money loan cost?
In our illustration, $14,998 for six months, $20,497 for nine and $25,996 for twelve. That is $1,833 a month of interest at an illustrative 11.00%, plus $4,000 in points paid once at closing. Real quotes differ, and extension, draw and default fees are not included.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
Nothing matches that. Try “refinance”, “FHA”, “Texas”, “Rocket” or “PMI”.