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Mortgages & financing

Hard Money Loan

Also called hard money, bridge loan, fix-and-flip loan

In short

A hard money loan is a short-term loan from a private lender, secured mainly by the property's value rather than the borrower's income. Investors use it to buy and renovate properties quickly.

Typical term
6 to 24 months
Cost
Higher rates plus points
Based on
Property value or ARV
Common use
Flips and BRRRR deals

How hard money works

Private lenders and funds lend against the deal itself. They often finance a share of the purchase price and most of the renovation budget, capped at a percentage of after repair value. Funds can close in days, which helps with bank-owned homes and properties that won't qualify for a conventional mortgage.

Costs and terms

Expect interest rates well above conventional loans, origination points paid upfront, interest-only payments, and repair funds released in draws after inspections. Many loans carry extension fees if the project runs long. Rates and terms vary widely by lender and market.

Exit strategy

Because the loan is short, you need a plan to repay it: sell the property (a flip) or refinance into a long-term rental loan (the BRRRR method). Delays in repairs or sales raise holding costs quickly.

Example

Financing a flip

An investor buys a house for $150,000 needing $40,000 in repairs, with an ARV of $260,000. A lender funds 85% of the purchase ($127,500) and 100% of repairs ($40,000), for a $167,500 loan, which is about 64% of ARV. At 2 points ($3,350 upfront) and 11% interest-only, interest is about $1,535 a month. Over six months, financing costs total roughly $12,600 before other closing costs.

Hard Money Loan vs. Mortgage

Hard Money Loan

A hard money loan is a short-term loan from a private lender, secured mainly by the property's value rather than the borrower's income. Investors use it to buy and renovate properties quickly.

Mortgage

A mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.

The differenceA conventional mortgage is long-term and based on your income and credit; a hard money loan is short-term, more expensive, and based mainly on the property's value.

Frequently Asked Questions

Related terms

After Repair Value (ARV)InvestingAfter repair value (ARV) is the estimated market value of a property once planned repairs and renovations are complete. Investors use it to decide how much to pay for a fixer-upper.BRRRR MethodInvestingThe BRRRR method is a rental investing strategy: buy a distressed property, rehab it, rent it, refinance based on the higher value, and repeat with the cash pulled out.The 70% RuleInvestingThe 70% rule is a fix-and-flip guideline: pay no more than 70% of a property's after repair value (ARV) minus the cost of repairs. It leaves room for profit, holding and selling costs.RefinanceMortgages & financingTo refinance is to replace an existing mortgage with a new one, usually to get a lower rate, change the loan term, or take cash out of the home's equity.Loan-to-Value Ratio (LTV)Mortgages & financingLoan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.FHA 203(k) LoanMortgages & financingAn FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.Cash-on-Cash ReturnInvestingCash-on-cash return is a property's annual pre-tax cash flow divided by the total cash the investor put in. It measures the yield on your own money after financing.

Learn more in the knowledge base

How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.How to Line Up Funds for a Foreclosure AuctionGuide · 7 min readMost foreclosure auctions require payment in cash or certified funds within a short deadline, with no financing contingency. This guide explains common deposit and payment rules, how to show proof of funds, the sources auction buyers use, how to time money between the sale and full payment, and why you need reserves beyond your bid.Proof of Funds and Pre-Approval for Bank-Owned OffersGuide · 6 min readBank-owned sellers usually want evidence that you can close before they will look at your offer. This guide explains what REO sellers ask for, how a pre-approval letter and proof of funds differ for financed and cash buyers, how to handle a seller's preferred-lender request and when to have each document ready.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.