Hard Money Loans FAQ

Hard money is a form of short-term financing provided by private individuals or small companies rather than large banks that is secured primarily by real estate, not the borrower’s credit.

These loans carry higher interest rates because they are flexible and can be funded quickly to close on time-sensitive deals.

Learn more in our in-depth article What is Hard Money.

Also referred to as private money loans or hard money bridge loans, these are asset-based loans where real estate is almost always used as collateral.

They are usually funded by private lenders and commonly used for fast closings, fix-and-flip projects, bridging a gap in funding, or complex transactions that traditional banks won’t fund.

Hard money lenders, also called private money lenders or bridge lenders, are typically small, specialized companies funded by high-net-worth individuals or family offices. Instead of relying on strict bank-style criteria, they evaluate real estate deals directly and decide which projects to finance, then deploy capital quickly to meet investor timelines.

Hard money loans can be an excellent option for fix-and-flip projects, borrowers needing short-term gap financing, investors who want to close quickly on a strong opportunity, or buyers looking to take advantage of distressed properties. They work best when speed and flexibility matter more than long-term cost.

It’s essential, however, for borrowers to have a clear exit strategy because these loans are not meant to be held long term. Used correctly, they can be a powerful tool rather than a financial burden.

Hard money loans typically run for 12 to 24 months and often include a 3 to 6 month prepayment penalty. Because they are structured as interest-only loans, borrowers must be prepared to make a large balloon payment at the end of the term.

Many lenders have a minimum loan amount of $200,000 or $250,000, but this varies lender-by-lender. 

Most hard money lenders have a maximum loan amount of around $2 to $3 million; however, there are large commercial lenders in the marketplace who can lend $20 million or more.

Hard money lenders charge anywhere between 1% to 4% of the total loan amount. As a rule of thumb, the larger the loan amount, the fewer the origination points.

For smaller loans in the low hundreds of thousands of dollars, many lenders will charge a fixed fee.

Brokers shop your hard money loan to multiple lenders, acting as intermediaries, while a direct lender controls the capital and makes the final approval decision. Working with a broker may help you secure a slightly lower interest rate, but it often results in higher origination costs since you’re paying fees to both the broker and the lender.

Local direct lenders offer valuable insight into the real estate market that nationwide lenders often lack. They also control their own capital, which allows them to make faster decisions and directly approve and fund your loan.

For more background, check out our article: Why Choose a Local Hard Money Lender in Los Angeles.

Banks generally do not provide hard money loans because these instruments represent a significantly higher financial risk and fall outside the scope of traditional banking regulations and stringent underwriting standards.

By law, regulated financial institutions must adhere to strict government lending rules, which require the thorough verification of borrower income and debt-to-income (DTI) ratios. 

Furthermore, banks are obligated to maintain a prudent loan portfolio weighted toward lower-risk assets.

While most hard money lenders will perform a credit check, it is generally considered a secondary factor in the loan approval process.

The most important factor for securing a hard money loan is the appraised value of the collateral asset itself, not the borrower's credit history.

Usually, no, but it depends on the lender.

Most hard money loans do not automatically appear on your personal credit report, largely due to the nature of the lenders and the loan structure.

Yes, a formal valuation of the collateral asset is almost always required, but hard money lenders often have flexibility regarding what type of valuation is used.

Hard money lending is primarily asset-based, meaning the loan security is the real estate itself. To mitigate their risk, lenders must establish the true market value to set the appropriate Loan-to-Value (LTV) ratio.

Types of Valuation Commonly Used:

• Full Appraisal: A comprehensive report conducted by a licensed appraiser. This is usually required for large loan amounts, complex properties, or for loans where the lender's risk tolerance is lower.
• Broker Price Opinion (BPO): A less formal, faster, and cheaper valuation provided by a licensed real estate broker. Many hard money lenders accept a BPO for smaller loans or properties with clear comparable sales data.

The Key Exception: Low Loan-to-Value (LTV)

The valuation requirement is most often waived or simplified when the requested loan amount is exceptionally low relative to the property's readily verifiable market value.

If the borrower has significant verifiable equity, resulting in a very low LTV ratio, the lender's risk is minimized, making a full, costly appraisal less critical.

Every lender in California is required by law to hold a valid license, and their license ID should be clearly displayed on their website and all marketing materials. 

To verify a lender's license in California, visit the CalBRE Public License Lookup.

Yes, many hard money lenders do check your credit, but it’s not always required. Unlike traditional bank loans, hard money lending focuses primarily on the property’s value and the loan-to-value ratio rather than just your personal credit score.

Hard money lenders earn income based on the loans they fund, the fees they charge, and the interest they collect. For example, if a lender charges 2 origination points on a $1 million loan, they would earn $20,000 upfront. On top of that, if the loan carries a 10% annual interest rate, the lender would earn $100,000 in interest over the course of a one-year loan.

Hard money loans are typically short-term, ranging from 12 to 24 months, with 12-month terms being the most common. These shorter durations allow investors to move quickly, complete projects, and refinance or sell the property as needed.

Yes. Hard money loans are fully legal and regulated, providing a legitimate alternative to traditional financing for real estate investors.

The cost of a hard money loan depends on the loan amount, term, and the risk involved. Typically, hard money lenders charge:

• Interest rates: In California, hard money loan interest rates typically range from 9% to 14% annually, depending on factors such as the property type, location, and borrower profile. Rates are generally higher than traditional bank loans because hard money is short-term, asset-based financing.
• Origination fees (points): Usually 1% to 3% of the loan amount, charged upfront.
• Other fees: Some lenders may include underwriting, processing, or exit fees.

Because hard money loans are asset-based rather than credit-based, the property’s value and loan-to-value ratio have the biggest impact on costs.

• 1st position loans: Typically range from 9% to 11%.
• 2nd position loans: Usually range from 12% to 14%.

Interest rates are largely determined by risk. Lower-risk loans—such as those with a low loan-to-value (LTV), a well-located and well-maintained property, and a financially strong borrower—generally qualify for the lower end of the rate range.

To go deeper into how interest rates are determined, check out our article on California Hard Money Loan Interest Rates.

Yes. Hard money loans are almost always structured as interest-only, meaning borrowers pay only the interest each month, with the principal due at the end of the loan term. This setup provides flexibility and helps investors manage cash flow during short-term projects.

Hard money loan interest rates can change frequently, depending on market conditions, lender policies, and property risk factors. Unlike traditional bank rates, which are often fixed or tied to broader indices, hard money rates are set by the lender based on the current lending environment and the specifics of each deal.

For borrowers, this means that rates can vary from week to week, so locking in a loan quickly can help secure the most favorable terms.

You can start by searching on Google for terms like “California hard money lender” or “Los Angeles hard money loans.”

For a more detailed guide, check out How to Find the Best Hard Money Lender in California, which walks you through what to look for, common red flags, and how to evaluate lenders effectively.

Most lenders ask for a purchase contract, proof of funds, renovation budget, ID, and basic financial statements. For a full breakdown, see our guide on The Most Common Hard Money Documents.

One of the biggest advantages of hard money loans is how quickly you can get funded. Some loans can close in as little as 3 days, though the typical funding timeframe is 5 to 10 days. For a detailed breakdown, check out our in-depth article, How Long Does It Take to Get a Bridge Loan?

Hard money loans are legally intended for investment or commercial properties, not personal residences. A primary residence is considered a consumer loan, and most hard money lenders are not licensed to make these types of loans. While it may be possible in rare cases, expect stricter requirements, higher interest rates, and lower loan-to-value limits.

Most hard money lenders aim for a loan-to-value (LTV) between 65% and 75%, ensuring the borrower has sufficient “skin in the game” and helping reduce the lender’s risk. LTV may vary depending on the property type, location, and borrower profile.

Hard money lenders typically charge:

• Interest rates: In California, the interest rate is usually 9% to 14% annually, depending on the property and borrower.
• Origination fees (points): Often 1% to 3% of the loan amount, paid upfront.
• Other fees: Some lenders may charge underwriting, processing, or exit fees.

Because hard money loans are asset-based, the property’s value, location, and condition usually have a bigger impact on costs than the borrower’s credit score.

If a borrower fails to make their monthly interest payments, the lender has the legal right to foreclose on the property.

The lender can then sell the property and use the proceeds to recover their initial investment, along with any accrued interest or fees.

Hard money loans are secured by the property itself, which helps protect the lender in the event of a default.

For a more in-depth explanation, check out our article: What Happens If You Default on a Hard Money Loan.

Hard money loans offer several key benefits for real estate investors:

• Fast approval and funding: Loans can often close in 5 to 7 business days, allowing you to act quickly on opportunities.
• Flexible terms: Lenders can tailor the loan structure to fit the specific deal.
• Financing for challenging deals: Hard money can provide funding for properties or situations that traditional banks may not finance.
• Asset-based underwriting: Approval is based primarily on the property’s value, rather than the borrower’s credit score, making it easier for investors to access capital.

While hard money loans offer speed and flexibility, there are some drawbacks to consider:

• Higher interest rates: Hard money loans typically carry higher rates than traditional financing.
• Short-term focus: Loans are usually 12 to 24 months, making them ideal for quick projects but not long-term ownership.
• Higher fees: Origination and other lender fees are generally higher than conventional loans.

Successful borrowers plan their exit before taking a hard money loan. The most common strategies include:

1. Refinance into a long-term loan: Pay off the hard money loan by securing a conventional mortgage once the property is stabilized.
2. Sell the property: Complete renovations or improvements, then sell to repay the loan and capture profits.
3. Cash-out refinance: Increase property value, refinance with a bank, pay off the hard money loan, and access remaining equity as cash.
4. Use other funds or investments: Liquidate other assets or investments to repay the loan without selling the property.
5. Bridge to a long-term rental hold: Convert the property to a rental, refinance based on rental income, and build long-term equity.

Each strategy depends on your goals, property type, and market conditions. Hard money lenders want to see a clear plan for repayment, so defining your exit strategy early is key.

For a deeper dive, check out our guide: The 5 Best Hard Money Loan Exit Strategies.

A 1st trust deed has the primary claim against a property, while a 2nd trust deed sits in a subordinate position behind the first mortgage. In the event of a foreclosure, the 1st position lender is paid in full before the 2nd position lender can recoup any funds.

For a more detailed explanation, check out our article: 1st vs 2nd Trust Deeds in Hard Money Lending.