Glossary
Hard money lender
A hard money lender is a company that makes short-term loans secured by the property itself, mostly to investors buying and renovating houses. They lend on the deal more than on your income, and charge higher rates and points for the speed.
Hard money pays for the purchase and usually the rehab, released in draws as work is done. The loan is paid off when you sell the flip or refinance into a long-term loan.
How a hard money lender sizes the loan
- Loan to cost: a share of the price and of the rehab budget (LTC).
- Loan to ARV: a cap based on the after repair value (loan to ARV).
- The lower of the two is your loan. Everything else is cash you bring.
- Purchase at 90% loan to cost
- $157,500
- Rehab at 100%
- $67,500
- Loan by cost
- $225,000
- Cap at 75% of a $335,000 ARV
- $251,250
Run The Deal's planning default is 11% interest and 2 points, charged only on drawn funds. Your lender's terms will differ.
What to ask before you sign
- Rate, points and fees, and whether interest is charged on the full loan or only on drawn funds.
- How draws work: inspection, fee per draw and how fast money arrives.
- Term, extension fee and any minimum interest.
- Experience requirements and whether they lend in your state.
See the real cost with the hard money loan calculator and read hard money draws explained.
Questions
Is a hard money lender the same as a private money lender?
Not quite. Hard money lenders are companies with set programs. Private money usually means an individual whose terms you negotiate.
How fast can a hard money lender close?
Often faster than a bank, sometimes in about two weeks, because they look mostly at the property. Timing varies by lender and appraisal.
Written by Austin Frangoules | Updated
Keep going
Run your next deal before you write the offer.
Run The Deal is in an invite-only beta. Ask for a spot and we will email you when it opens.