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Glossary

Hard money loan

A hard money loan is a short-term loan from a private lender, secured by the property, used to buy and renovate a house. It closes fast and lends on the deal, but costs more than a bank loan in rate and points.

Hard money is built for flips and the first leg of a BRRRR. The lender cares most about the property and the plan, and funds the rehab in draws as work gets done.

How it works

Run The Deal's planning defaults, not quotes:

  • 11% interest, charged on drawn funds.
  • 2 points on the loan plus $1,500 in lender fees, and $150 per draw.
  • Up to 90% of the purchase price and 100% of the rehab (loan to cost).
  • Capped at 75% of ARV (loan to ARV).
  • 12 month term, with 1 point per 3 month extension.
Example | Sizing a hard money loan
Purchase price
$190,000
Rehab
$50,000
ARV
$320,000
90% of purchase + 100% of rehab
$171,000 + $50,000 = $221,000
Cap at 75% of ARV
$240,000 (not binding)
Points (2%) + fees
$4,420 + $1,500 = $5,920
Loan / cash down at closing$221,000 / $19,000 plus closing costs

Of the $221,000, $50,000 is a rehab [holdback](/glossary/holdback) paid out in draws.

What to watch

  • Interest basis. Dutch interest charges on the full loan from day one.
  • The ARV cap. On a thin deal, the 75% of ARV limit binds and you bring more cash.
  • Fronting draws. Many lenders reimburse completed work, so you pay the contractor first.
  • Extensions. A slow project can add a point or more.

Compare lenders on total cost, not rate alone, in the flip calculator.

Questions

How much do hard money lenders charge?

Terms vary by lender and borrower experience. Run The Deal plans with 11% interest, 2 points and $1,500 in fees as a starting assumption. Replace them with your lender's real terms.

How much down payment does a hard money loan need?

Often 10% to 20% of the purchase plus closing costs, depending on the lender. If the loan hits the ARV cap, you bring the difference too.

Do hard money lenders check credit?

Many do, but the property, the rehab plan and your experience usually weigh more than with a bank. Requirements vary by lender.

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