Hard Money Guide For Real Estate — The Quick Read: A hard money loan is a short-term, asset-based loan secured by real estate, made by private investors or non-bank finance companies rather than a bank. It’s underwritten primarily on the property, the deal, and the exit plan — not on your W-2s or debt-to-income ratio. Terms typically run 6-18 months, interest-only, with leverage measured against project cost and after-repair value rather than a flat purchase-price percentage. It’s the tool investors reach for on flips, rehabs, and ground-up construction — deals a conventional mortgage or even a DSCR rental loan isn’t built to fund.
What You Need to Know First
Before getting into the mechanics, here’s the short version of everything below:
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.
- Hard money underwriting starts with the property’s value and your exit plan — credit and income matter, but they’re secondary.
- Leverage on a fix-and-flip is set as a percentage of total project cost (purchase plus rehab), capped by a percentage of the after-repair value — whichever number is lower wins.
- Rehab dollars don’t hit your account at closing. They sit in escrow and release in draws as work gets completed and inspected.
- Terms run 6-18 months on an interest-only basis — this is bridge capital, not a permanent loan. Most investors who want to hold long-term refinance out into a rental loan once the property is stabilized.
- Credit floors run lower than conventional financing, but they’re not zero — a 620 score is a common minimum, with more conditions attached below 660.
What Is a Hard Money Loan?
A hard money loan is short-term financing secured by a hard asset — the real estate itself — rather than by your personal creditworthiness. Instead of banks, the money typically comes from private investors, investment funds, or non-bank finance companies that specialize in this kind of lending.
The underwriting logic flips the script on a conventional mortgage. Experian explains that hard money underwriting looks primarily at the value of the property to determine loan approval, rather than the borrower’s credit history and finances alone. A Scotsman Guide analysis frames it even more directly: these lenders make loans despite deficiencies in credit, reserves, or income because their focus is on equity — the amount the borrower brings to the deal, including the equity in the property securing it.
Practically, that means hard money exists to fund deals a bank won’t touch: distressed properties, fast-turn rehabs, ground-up builds, and acquisitions where the numbers work on paper but the timeline or property condition rules out agency financing.
Investors who want a broader walkthrough of how these deals get structured and negotiated can start with Lendmire’s guide to hard money loans for real estate investors, which covers the sourcing side in more depth than this piece does.
Key Terms Defined
Every hard money conversation uses the same handful of terms. Here’s what they actually mean:
After-Repair Value (ARV) — what the property will be worth once the rehab or construction is finished, based on an appraisal or comparable sales.
Loan-to-Cost (LTC) — the share of the total project cost, meaning purchase price plus rehab budget, that the lender is willing to fund.
Loan-to-Value (LTV) — the loan amount measured against the property’s current or as-is value rather than its finished value.
Draw Schedule — the staged release of rehab funds, paid out as specific phases of work (framing, mechanicals, finishes) are completed and inspected.
Business-Purpose Loan — a loan made for investment or business use rather than for a home you’ll live in, which is how virtually all hard money to investors is structured.
Exit Strategy — the borrower’s plan for paying off the short-term loan, usually a sale or a refinance into longer-term financing.
How Does Hard Money Underwriting Actually Work?
Underwriting on a hard money file runs in roughly this order: the property first, the deal second, and the borrower third. A Scotsman Guide breakdown of the underwriting checklist lists the practical elements — credit score, net worth, liquidity, and experience; the neighborhood; the property’s condition; and, where income matters, whether it matches the actual rent roll rather than a projection.
Here’s how that typically plays out across a file:
1. Property valuation. An appraisal or broker opinion establishes both the as-is value and the after-repair value — the two numbers that will set your leverage ceiling.
2. Deal and exit review. The lender wants to see the scope of work, the timeline, and how you plan to pay the loan off — sale, refinance, or both.
3. Borrower and experience review. Credit and track record come into play here. A 620 credit score is a common floor across parts of the hard money network Lendmire arranges through, though scores below 660 typically come with more conditions attached, and first-time investors generally land at the more conservative leverage tiers rather than getting shut out entirely.
4. Documentation. Expect a purchase contract, a rehab scope-of-work or construction budget, entity formation documents if you’re closing in an LLC, a personal guaranty, and proof of insurance.
5. Draw setup. If rehab dollars are part of the loan, the lender sets up the escrow and inspection schedule that will govern how those funds release.
Hard money loans are designed for non-owner-occupied investment property. Because they’re business-purpose loans, they get reviewed differently than a standard owner-occupied mortgage — the file is built around the deal, not a personal debt-to-income calculation.
One mechanical detail catches new investors off guard: rehab money doesn’t arrive as a lump sum. RehabWallet notes that most lenders break the draw process into three to six phases tied to specific milestones, with an inspector confirming completed work before each release. That’s the mechanical reason hard money can move on acquisition while rehab dollars disburse against verified progress rather than projected progress.
How Much Can You Actually Borrow?
The honest answer: it depends on which leverage test binds first — cost or value — and most files hit the cost cap before they hit the value cap. Across the leverage tiers Lendmire places files against, here’s how it typically breaks down by deal type.
- Fix-and-flip. Leverage is tiered by track record: roughly 93% of total project cost for investors with five or more completed projects, 90% at two or more, and 85% with fewer than two completed deals — every tier capped at 75% of the after-repair value, whichever number is lower.
- Bridge purchases with no rehab. Up to 80% of purchase price on straightforward acquisitions where there’s no renovation scope attached.
- Cash-out and rate-term refinance. Up to roughly 65% of current value — noticeably tighter than the purchase-side leverage, since there’s no forced-appreciation cushion built in yet.
- Ground-up construction. Up to 90% of project cost or 75% of completed value for investors with three or more completed projects, funding a build from the ground rather than a rehab of existing structure.
- Rehab draws. Up to 100% of the rehab budget itself can fund in draws against completed work — but that’s a rehab-cost figure, not a purchase-price leverage number, and it’s easy to conflate the two.
RealEstateSkills puts the general LTC range for hard money at 70% to 90% of total project cost industry-wide, with the ARV cap layered on top as the ceiling regardless of what the cost math produces. UC Merced’s glossary frames LTV the same way most lenders use it: a straight ratio of loan amount to appraised value.
Loan sizes across the network Lendmire places files through typically run up to $5,000,000, with larger amounts considered by exception and smaller balances varying by lender. Terms run 6-18 months on an interest-only basis with no prepayment penalty — there’s no multi-year hard money structure on these programs. If a deal needs longer runway than that, the practical move is refinancing into permanent financing once the property stabilizes, which is covered further down.
Why “100% Financing” Is a Half-Truth
There’s no true 100% purchase-price hard money program, and any headline claiming one is describing something else. What actually exists is the rehab-draw structure: up to 100% of the rehab budget can fund in stages, but that’s financing the construction cost, not the purchase itself.
On the acquisition side, purchase leverage tops out around 80% of price on a straight bridge deal, or the cost-based tiers described above on a flip. An investor bringing strong liquidity and a completed track record can stack a high rehab-draw percentage on top of aggressive purchase leverage and end up putting very little cash into the deal at closing — but that’s the combination of two separate leverage tests working together, not a single 100%-of-everything product. Understanding that distinction before you shop lenders saves a lot of wasted conversations. How to find hard money lenders for real estate walks through what to ask a lender to get a straight answer on where your specific deal actually lands.
What Properties and Markets Qualify?
Hard money in this space is built around non-owner-occupied residential real estate — 1-4 unit properties for standard rehab and bridge deals, and up to 10 units on ground-up construction for investors with a track record. What’s not on the table: commercial buildings, industrial property, raw land or lots, hospitality assets, and anything owner-occupied. This is business-purpose lending on investment real estate, full stop.
Investors working on small multifamily deals or pooling capital with partners on a larger acquisition may also want to look at private money syndication for multifamily real estate, which sits adjacent to standard hard money for deals that involve multiple capital sources.
Geography matters too. Lendmire arranges hard money financing across 40 markets, including Washington, D.C., but the footprint isn’t universal — it currently excludes California, Minnesota, North Dakota, and South Dakota statewide, along with Baltimore, Chicago, and Detroit specifically. If your deal sits in one of those markets, that’s a scope limit worth confirming before you get attached to a property.
A Worked Example: Running the Numbers on a Rehab Deal
Say an investor finds a property with a $220,000 purchase price and a $60,000 rehab scope — a total project cost of $280,000. A local appraisal or comp analysis puts the after-repair value at $340,000.
For an investor with fewer than two completed projects, leverage runs around 85% of project cost: 85% of $280,000 is $238,000. Check that against the ARV cap — 75% of $340,000 is $255,000. Since $238,000 sits below the ARV ceiling, the cost-based number is what actually binds here, and that’s the leverage figure the file lands on.
Now run the same deal for an investor with five or more completed projects. Leverage moves up to roughly 93% of cost: 93% of $280,000 is $260,400. But the ARV cap doesn’t move — it’s still 75% of $340,000, or $255,000. Here the ARV cap becomes the binding constraint, and $255,000 is what the file supports, not the higher cost-based number.
That’s the core mechanic of hard money leverage: two tests run side by side, and whichever produces the lower number wins. A stronger track record raises your cost-based ceiling, but it never lifts the ARV cap — the property’s finished value is the hard stop regardless of experience. These are illustrative figures to show how the math works, not a quote on any specific deal; actual leverage depends on the lender, the property, and underwriting review.
Hard Money vs. DSCR vs. Conventional Financing
These three tools solve different problems, and mixing them up is one of the most common investor mistakes.
| Factor | Hard Money | DSCR Loan | Conventional |
|---|---|---|---|
| Underwriting basis | Property equity + exit plan | Property rental income vs. payment | Personal income and DTI |
| Term | 6-18 months, interest-only | Long-term, typically 30-year fixed | Long-term, typically 30-year fixed |
| Leverage measure | Loan-to-cost / ARV | Loan-to-value | Loan-to-value |
| Best fit | Flips, rehabs, ground-up builds | Stabilized rental properties | Owner-occupied purchases |
Hard money is short-term capital for a property that isn’t rent-ready yet. A DSCR loan is reviewed primarily on the property’s rental income covering the monthly obligation, subject to lender guidelines — Lendmire’s complete DSCR loans guide covers how that qualification actually works, and the difference from a personal-income-based mortgage is laid out in Lendmire’s DSCR vs. conventional comparison. Conventional financing runs on your traditional personal-income documentation and debt-to-income ratio and generally isn’t built for a distressed acquisition or a fast rehab timeline at all.
What Happens After the Rehab Is Done?
The exit is the part of the plan that separates a good hard money deal from a stressful one. Because these loans run 6-18 months on an interest-only basis with no long-term option built in, the plan has to be locked in before you close, not figured out afterward.
Most investors exit one of two ways: sell the finished property, or refinance into permanent financing and hold it as a rental. For investors choosing the hold path, many refinance out of hard money into long-term DSCR financing once the property is stabilized and generating rent — Lendmire brokers that transition for investors who complete a rehab or new build and want to keep it as a long-term hold rather than sell. That refinance runs on the property’s income and current value rather than the cost basis that governed the hard money loan.
Negotiating the acquisition itself, and lining up the numbers so the exit actually pencils, is its own skill — Lendmire’s guide on how to make a deal with hard money lenders walks through that side of the process.
One point Lendmire’s team sees trip up newer investors constantly: clearing a strong ARV cap doesn’t guarantee the refinance appraisal will land at the same number. Rehab quality, finish level, and how comparable sales trend between acquisition and completion all move that number — sometimes in the investor’s favor, sometimes not. Building a small cushion into the exit plan rather than underwriting to the best-case ARV is the difference between a smooth refinance and a scramble near the end of a loan term.
Tax treatment can depend on how the loan proceeds 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.
This article is for general information only and isn’t legal or tax advice. Investors should talk with a qualified attorney or CPA about how any of this applies to their specific situation.
Frequently Asked Questions
Is hard money the same thing as a bridge loan?
They overlap heavily but aren’t identical terms. Hard money typically describes rehab and construction financing measured against project cost and after-repair value, while a bridge loan more narrowly describes a straightforward purchase without a renovation scope — Lendmire’s bridge-purchase leverage tops out around 80% of price, separate from the cost-tiered flip structure.
Do I need good credit to get a hard money loan?
Not agency-level credit, but not zero either. A 620 score is a common floor across the network, with scores below 660 usually carrying additional conditions, and first-time investors typically land at more conservative leverage tiers rather than being turned away outright.
Can I use hard money on a property I plan to live in?
No. These are business-purpose loans for non-owner-occupied investment property — 1-4 units for standard deals, up to 10 units on qualifying ground-up construction. Owner-occupied properties aren’t eligible under this structure.
What happens if my rehab runs longer than the loan term?
Terms run 6-18 months, and there’s no multi-year hard money option on these programs, so a stalled timeline is a real risk to plan around before closing. Most investors handle this by building buffer into the schedule upfront or lining up a refinance exit well before the term ends rather than waiting until the last month.
Why is cash-out refinance leverage so much lower than purchase leverage?
Purchase and flip leverage account for forced appreciation you haven’t captured yet, so lenders extend more against the deal’s projected value. A cash-out or rate-term refinance is pulling equity out of a property already at its current value with no upside cushion built in, which is why that leverage caps around 65% instead.
If you’re weighing a rehab acquisition against a longer-term rental hold — or you’ve got a hard money deal that’s ready to refinance into permanent financing — Lendmire can help compare how the numbers work based on the property, the leverage available, your credit profile, and your goals for the deal.
The exit plan matters as much as the purchase price on short-term financing – see refinancing out of a hard money loan with a DSCR loan.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 40 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. 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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References
1. Experian — How Do Hard Money Loans Work?
2. Scotsman Guide — Hard Money Financing Can Be the Path of Least Resistance
3. Scotsman Guide — Make the Underwriter Happy
4. RehabWallet — Rehab Draws 101
5. UC Merced — Key Terms You Should Know in Hard Money Lending
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.
