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What Is a Hard Money Loan?
Hard money loans (aka, private money loans, bridge loans, or gap loans) are short-term, asset-based loans usually secured by real estate.
These loans can be used in a variety of real estate investment scenarios like fix-and-flips, 1031 exchanges, cash-out refinancing, construction financing, bridge financing, and much more.
Unlike traditional bank loans, which focus on your income, credit history, and debt-to-income ratio, hard money loans are based on the value of the underlying collateral asset.
The property type, location, and loan-to-value of the collateral property are the main factors hard money lenders use during the underwriting process to determine whether or not a loan is funded.
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Secured by Real Estate: Hard money loans are almost always secured by real estate, whether it be residential, commercial, mixed-use, or even vacant land in some cases.
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Hard Money Lenders: Are responsible for underwriting the hard money loans and accessing capital to fund the loans from:
- An investment fund that pools capital from investors
- High-net-worth individuals looking to diversify their investment portfolio
- Family & Friends
- Local business professionals like doctors and lawyers
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Shorter Duration: Hard money loans come with higher costs than traditional bank loans and almost always have shorter terms, typically 6 to 24 months.
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Higher Costs: Interest rates can range from 8 to 15% depending on location, property type, financial strength of the borrower, and current lending market conditions. They often come with a one-time upfront fee called origination points that are paid at the start of the loan, but not before the client receives the loan.
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Interest-only Loans: Most hard money loans are interest-only; rarely are they amortized. This means the monthly payments a borrower makes will only be applied toward the interest of the loan and not the principal amount. It is common for a borrower to make a balloon payment of the full loan amount before or when the loan is due.
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Flexible Qualifications: The asset being used as collateral is heavily weighed by hard money lenders during the underwriting process.
If the collateral is great and a borrower’s story is compelling enough, even things like bad credit and poor financial history can be overlooked, unlike big institutional lenders, where all the boxes must be checked in order to qualify for a loan.
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LTV: The loan-to-value ratio is the value of the property compared to the loan amount. Check below to see some examples of LTV scenarios.
What is an Interest-Only Loan?
Most hard money loans are structured as interest-only
- The borrower only pays the monthly interest during the loan term and not any part of the principal.
- The principal (original loan amount) is repaid in full at the end of the term in a balloon payment, typically through the sale of the property or refinancing into a traditional mortgage.
- Benefit: Keeps monthly payments lower while you focus on improving or flipping the property.
- Consideration: Private money lenders always want to know how they will be repaid. They will want to see a clear exit strategy from the borrower. Will the hard money loan be repaid via a refinance into a traditional bank loan, a sale of the property, the sale of a different property, or any other reasonable method?
Hard Money Loans vs Mortgage
Hard money loans and mortgages are different types of loans. In contrast, an HML is used for short-term scenarios, whereas a mortgage is generally used for a much longer scenario. Each option has distinct characteristics and suitability based on a borrower's circumstances. Here is a table of differences:
Hard Money Loans
20% to 30%
Little as 5 to 7 days
Minimal
7% to 15%
Not an important factor
6 to 24 months
Minor factor
Short-term
Interest-only
Not a critical factor
Not always necessary, but sometimes
Most critical factor
Below 75%
Very possible
Not important
1% to 5%
Usually 6 months
Mortgages
3% to 25%
6 weeks to months
Extensive
6.5%
Credit score of 600 or higher
15 to 30 years
Minimum of two years
Long-term
Amortized fixed-rate payments
Higher income can = better interest rate
1-2 months of mortgage payments
Important factor
Up to 97%
Rarely not possible
30% to 43%
0.5% to 2%
Often none
When to Use a Hard Money Loan
Hard money loans aren’t for every scenario — but they shine in certain use cases.
Fix-and-flip projects
- Purchase distressed properties, renovate quickly, and resell for profit.
- Lenders often fund both acquisition and rehab costs.
Bridge financing
- Cover the gap between buying a new property and selling an existing one.
- Useful when traditional financing is delayed.
Cash-out refinancing
- Pull equity out of an existing property for another investment.
- Faster than refinancing through banks.
Construction loans
- Finance new builds or major renovations where banks may hesitate.
Auction or foreclosure purchases
- Auctions often require immediate proof of funds — hard money provides that flexibility.
Unique property situations
- Mixed-use, vacant, or non-income-producing properties often don’t qualify for conventional loans.
Why Real Estate Investors Use Hard Money Loans
Real estate is competitive, and many deals require fast action. Waiting 30–60 days for a traditional bank loan can mean losing an opportunity. That’s where hard money comes in.
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Speed of funding: Many lenders can close in as little as 3–10 days.Ideal for auctions, foreclosure purchases, or distressed deals.
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Flexibility on property type: Can fund properties that banks won’t touch (vacant, unrenovated, mixed-use, or non-stabilized rentals).
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Less focus on borrower credit: Credit score matters less than the property value and equity. Good option for investors with limited credit history or recent financial setbacks.
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Competitive advantage: Offering “cash-equivalent” terms makes the offers more attractive to sellers.
Handpicked Resources
Hard Money Guide
Direct Hard Money Lender Tools
Hard Money Loan Calculator Areas Served
Los Angeles Hard Money Lenders Blog
What Happens if You Default? Hard Money
Hard Money Lenders in California
About the Author
Russell Barneson Hard Money Lending Expert
Russell is a seasoned real estate investor, writer, and hard money lending expert, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.