The Quick Read: A hard money loan is short-term, interest-only financing from a private lender, secured by the investment property. The lender sizes it on the deal (purchase price, rehab budget, and finished value), not on your paycheck. You buy, renovate, and then sell or refinance before the term ends. This article walks through a modeled deal from purchase to payoff so you can see where the money goes.
Key Takeaways
- The lender caps the loan two ways: a share of project cost and a share of after-repair value. The smaller number wins.
- You still bring cash. There is no true 100% purchase program, and the top leverage tier goes to experienced investors.
- Rehab money is held back and released in draws after the work is done. You front the cost first.
- The monthly interest is the small part of the cost. Origination fees, draw fees, the hold length, and the balloon payoff drive the real cost.
- For a buy-and-hold plan, the usual exit is a DSCR refinance. Test that exit before you buy.
What Is a Hard Money Loan, in Plain Terms?
A hard money loan is asset-based financing from a private lender. The property is the collateral, and the lender underwrites the deal more than the borrower. BiggerPockets describes the usual pattern: short terms, interest-only payments, and a fee stack on top of the loan.
What this loan actually costs to carry in your market.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
Three features define it:
- Short term. On the programs a broker sees across the wholesale network, terms run 6 to 18 months. There are no multi-year options.
- Interest-only. You pay interest, not principal, during the term. Some lenders want monthly payments. Others let interest accrue until payoff, so ask which one you are getting.
- Balloon payoff. The whole principal comes due at the end. FitSmallBusiness notes that the balloon is usually repaid from a sale, and sometimes by refinancing.
Market surveys report loan-to-value or loan-to-cost figures commonly ranging from 65% to 85%. On the programs Lendmire brokers, leverage depends on deal type and investor experience. The next section shows how.
A Worked Hard Money Loan Example
Here is one deal from start to finish. Every input below is a modeled assumption, not market data. Program figures vary by lender, property, and experience, and nothing here is a commitment to lend.
The inputs:
- Purchase price: $200,000.
- Rehab budget: $60,000.
- Project cost: purchase price plus rehab budget.
- After-repair value (ARV, the projected value once work is finished): $340,000.
- Hold: a six-month renovation and sale.
- Borrower: fewer than two completed projects.
Step 1: Size the loan two ways
On the network’s fix-and-flip programs, leverage is measured against project cost. It runs 93% of cost at five or more completed projects, 90% at two or more, and 85% below that. Every tier is capped at 75% of ARV.
Our borrower sits in the 85% tier. Here is how each test reads:
- The cost test: 85% of the $260,000 project cost.
- The ARV test: 75% of $340,000.
Run those two numbers. The cost test is the smaller one, so it governs, and the ARV cap never bites.
Step 2: Find your cash
The rest of the project cost is yours: the remaining 15% at this tier. On top of that come closing costs, lender fees, and the interest carry. The fee stack BiggerPockets lists includes an appraisal or broker price opinion, title fees, an application fee, an inspection fee, and document processing fees.
This is where the “100% financing” ads mislead. Advertised numbers usually still sit under an ARV ceiling, so the investor usually brings cash regardless.
Step 3: Run the rehab through draws
The rehab portion is not handed over at closing. It is held back and released in draws, up to 100% of the rehab budget on these programs. That is a rehab-budget figure, never a purchase LTV.
Tactica RES describes how draws work. The lender verifies completed work, then reimburses. Interest accrues on the funds drawn. Each draw can carry a fee, so fewer draws cost less.
The catch is timing. You front each stretch of work before the reimbursement lands. Some flippers bridge the first round on their own credit lines.
Step 4: Carry the loan
Over the six-month hold, you owe interest on the balance outstanding, monthly or accrued depending on the lender. FitSmallBusiness makes the key point: total interest depends on how long it takes to sell or replace the loan. Delay is the main cost driver.
Step 5: Pay it off
You list and sell the finished property. The sale proceeds retire the balloon. What is left, after commissions, closing costs, fees, taxes, insurance, and carry, is your profit. That “what is left” figure is far smaller than the gap between purchase price and ARV.
The same deal when the ARV comes in low
Say the appraisal returns an ARV of $280,000 instead of $340,000. Now 75% of ARV is the smaller number. The ARV cap governs, the loan shrinks, and the difference lands on you as extra cash. Notice what happened. You did nothing wrong on the rehab, yet your cash need jumped.
Stress-test your ARV before you buy, not after.
How Underwriting Treats the Deal, Step by Step
Underwriting on a hard money loan follows a fixed order, and each step feeds the next.
1. Valuation. The lender establishes the as-is value. On rehab deals it also pulls the ARV, backed by comparable renovated sales nearby. Creditsuite describes this sequence: current value, planned repairs, then comps for the finished value. You are relying on the lender’s view of that final number.
2. Leverage sizing. The lender applies the cost tier and the ARV cap. The smaller result is the loan.
3. Borrower review. Underwriting stays asset-based, meaning it looks at the property, the plan, and the exit. Credit still matters. The network’s programs want a 620 minimum score, with additional conditions below 660. First-time investors qualify at the lower leverage tiers.
4. Documents. Expect a purchase contract, a scope of work and budget, comps or an appraisal, entity documents, proof of your cash, and your exit plan.
5. Draw schedule. Read the inspection and draw terms before you sign. The Credit People advises checking these along with any prepayment terms. On the network’s current program there is no prepayment penalty, but that varies by lender, property, and experience.
6. Exit. The lender wants to see how the balloon gets repaid.
What decides the outcome, in order of weight: ARV credibility, rehab scope and budget, your cash in the deal, your experience, and the exit plan.
The Structures Available (and Their Leverage Caps)
Hard money is not one product. The leverage depends on what you are doing with the property. These figures come from select lenders in Lendmire’s wholesale network and vary by lender, property, and experience.
| Deal type | Typical leverage | Notes |
|---|---|---|
| Fix-and-flip | 85%–93% of project cost | Tiered by completed projects; capped at 75% of ARV |
| Bridge purchase, no rehab | Up to 80% of purchase price | Fits a clean, ready property |
| Rate/term or cash-out refinance | Up to 65% of value | Lower cap than purchase |
| Ground-up construction | Up to 90% of cost | Also 75% of completed value; 3+ completed projects |
Loan sizes run up to $5,000,000, and larger by exception. Collateral is non-owner-occupied residential property of 1 to 4 units. Ground-up construction can go to 10 units. Commercial, industrial, land or lots, hospitality, and owner-occupied properties are not offered. Availability also varies by location.
Terminology drifts here. Bridge, fix-and-flip, and construction loans overlap, and The Credit People separates fixed-rate rehab loans, convertible bridge-to-permanent loans, and construction-draw structures. Ask any lender exactly which structure they are quoting.
Where the General Rule Breaks
The rules above hold most of the time. These cases bend them.
- As-is versus ARV. As-is value tends to drive bridge and rental-purchase loans. ARV drives flip loans. Assuming the wrong one misstates your leverage badly.
- Loans that accrue instead of pay. Some lenders charge interest on the full balance. Others charge only on drawn funds. The cash flow during the hold looks very different, so get the answer in writing.
- Owner-occupied property. Hard money loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. If you plan to live in the property, this is the wrong tool.
- Properties that can’t rent yet. A property that isn’t habitable generally can’t qualify for a long-term rental loan, because it can’t produce rent today. Hard money exists to bridge that gap. The renovation makes the property eligible for the exit.
- Short holds. On a flip you plan to sell within about six months, a long-term loan’s closing costs work against you. Hard money is built for that window.
- Long holds. The reverse is also true. Hard money is designed to be repaid, not held. Munoz Ghezlan says it is rarely intended as permanent financing.
- Thin experience. The top leverage tier is reserved for experienced investors. With fewer than two completed projects, expect the lowest cost tier and more cash out of pocket.
- Ineligible property. Land, commercial buildings, and owner-occupied homes are not offered on these programs.
Honestly, the ARV shortfall is the one that hurts most in practice. It is invisible until the appraisal, and it hits at the worst moment.
The Exit: From Hard Money to a DSCR Loan
For a flip, the exit is a sale. For a buy-and-hold, it is a refinance. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The full sequence is spelled out in the complete DSCR loans guide.
A DSCR loan qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The lender compares rent to the full monthly payment: principal, interest, taxes, insurance, and any association dues. Lenders call that payment PITIA.
Here is how the network’s DSCR programs typically look on the exit side. All of it is subject to lender guidelines.
- Cash-out refinance: tops out around 75% LTV across most of the network. About six months of seasoning, the waiting period since you acquired the property, is the common expectation.
- Coverage: 1.00 is where select programs start. It is a floor for specific programs, not a universal standard. Stronger coverage opens better pricing and leverage. Programs below 1.00 are available through select lenders in the network, with leverage and terms adjusted.
- Credit: a 620 floor exists in parts of the network, but most programs want around 660. A 700-plus score unlocks the strongest leverage tiers.
- Terms: the spine is the 30-year fixed. Longer terms and interest-only periods are available through select lenders, and ARM structures exist for investors who want them.
One warning. Clearing 1.00 does not mean the property produces positive cash flow. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. Use coverage to judge whether the loan works, and use your own operating budget to judge whether the deal works.
Now the risk. Underwrite the exit before you buy. A refinance needs a leased property, seasoning time, and an appraisal that reflects the new value. All of that must fit inside a 6-to-18-month maturity. Two common mistakes: not planning the refinance until after the rehab, and treating hard money as a long-term solution. Both leave you facing extension costs or a forced sale. For more on planning the payoff, see the hard money exit strategy guide.
Does the Deal Make Sense for You?
Work through these questions in order. Any “no” is a reason to slow down.
- Is the property a non-owner-occupied residential property of 1 to 4 units? If not, this program does not fit.
- Can you cover the cash gap? That means the share of project cost the loan doesn’t fund, plus fees, plus carry, plus the rehab dollars you front before each draw.
- Does the deal still work at a lower ARV? If the ARV comes in low, does the deal still pencil?
- Is the exit real? For a sale, do you have comps that support it? For a refinance, does the rent support the DSCR at the refinance loan size?
- Do you have a buffer for delay? Delay is the main cost driver. A six-month plan that slips to twelve costs far more than the original math showed.
If you’re comparing lender types before you commit, a guide to hard money lending covers the landscape.
The strongest hard money files usually have three things in common. The scope of work is documented line by line. The ARV comps are recent and close. The borrower has a written plan for the exit. A file missing any one of those tends to stall in review.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Key Terms Defined
- After-repair value (ARV): what the property is projected to be worth once the renovation is finished.
- Loan-to-cost (LTC): the loan as a percentage of total project cost, meaning purchase price plus rehab budget.
- Draw: a release of held-back rehab funds after the lender verifies completed work.
- Balloon payment: the full remaining principal due at the end of the term.
- Interest-only: a payment structure where you pay interest during the term and none of the principal.
- Exit strategy: your plan to repay the loan, by selling the property or refinancing it.
- Seasoning: the waiting period a lender wants between acquiring a property and refinancing it.
- DSCR (debt service coverage ratio): monthly rent divided by the full monthly payment on the property.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare hard money loan options based on the property income, credit profile, leverage, and investor goals. As a mortgage broker, Lendmire arranges hard money loans through select lenders in its wholesale network across 41 markets, including Washington, D.C. Any financing is subject to lender guidelines and is not a commitment to lend.
This article is general information, not legal or tax advice. Consult a qualified attorney or CPA about your own situation.
Frequently Asked Questions
Can a hard money loan cover 100% of the purchase?
No. There is no true 100% purchase program. The closest thing is that rehab funds can be drawn up to 100% of the rehab budget, but that is a rehab-budget figure. Total leverage is still capped by project cost tiers and by 75% of ARV. The top tier goes to investors with completed projects, so most borrowers bring meaningful cash.
Does my credit score matter if the loan is asset-based?
Yes, less than on a conventional loan but not zero. The network’s programs look for a 620 minimum, with additional conditions below 660. The property, the plan, and the exit still carry most of the weight.
Can I use hard money on my own home?
No. These programs are for non-owner-occupied investment property of 1 to 4 units, plus ground-up construction up to 10 units. Owner-occupied properties are not offered. Homeowners looking to renovate a primary residence have separate financing options.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Named a Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
Many investors treat hard money as the acquisition tool and plan the exit up front — see refinancing out of a hard money loan with a DSCR loan.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. BiggerPockets: Hard Money Loans
2. FitSmallBusiness: Hard Money Loan Calculator
3. Tactica RES: Hard Money Loans, a Practical Explanation
4. Creditsuite: How Do Hard Money Loans Work
5. The Credit People: What Are Hard Money Rehab Loans
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Loan Vs Mortgage · Complete Guide For A Hard Money Loan On Short-term Rental Properties · Complete Guide For A Hard Money Loan On 2-4 Unit Properties
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.