The Quick Read: A hard money loan for an interest-only balloon deal is a short-term loan secured by the property. You pay interest each month, and the full funded balance comes due in one lump sum at maturity. The lender sizes the loan on project cost and after-repair value caps, so the real test is whether your sale or refinance exit works on the maturity date.
- Terms typically run 6 to 18 months, interest-only, with no prepayment penalty. Details vary by lender, property, and experience.
- Leverage is tiered by completed projects and measured against project cost, with a hard cap tied to after-repair value.
- A 620 minimum credit score is typical, with extra conditions below 660. Underwriting stays asset-based: the property, the plan, and the exit.
- Collateral is non-owner-occupied residential property of 1 to 4 units, with ground-up construction allowed to 10 units.
- The balloon is the funded principal due at once. You repay it from a sale or a refinance, not from monthly cash flow.
Most investors hear “interest-only” and think about the payment. The real structure question is different. What has to be true on the maturity date for the whole loan to be repaid?
What this loan actually costs to carry.
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.
Everything below walks through that, step by step. It covers how the lender sizes the loan, how interest accrues, what the balloon is, which requirements the structure creates, and where the usual rules break. Every program figure is a typical range from select lenders in Lendmire’s wholesale network. It varies by lender, property, and experience, and nothing here is a commitment to lend.
What Does Structure Mean in a Hard Money Loan?
Structure means four things working together: the term, the payment type, the balloon, and the collateral. Together they decide how much you borrow, what you pay while you hold, and how the loan ends.
A hard money loan is short-term and secured by the property. Investor glossaries describe the underwriting as collateral-focused rather than income-focused. That matches what we see across the network. Lenders look hardest at the asset, the business plan, and the exit.
Here is the layout of a typical deal:
- Term. Six to eighteen months. There are no multi-year options on the current program.
- Payment. Interest only. The balance never shrinks.
- Balloon. The full funded balance comes due at maturity.
- Collateral. The property itself, usually a rehab, a bridge purchase, or a refinance candidate.
- Rehab money. Released in draws as work gets finished, not wired all at once.
If you need a longer runway than eighteen months, the answer is not a longer hard money term.
How Does the Interest-Only Payment Work?
The payment equals the outstanding balance times the annual rate, divided by twelve. There is no principal piece. What changes from lender to lender is which balance the interest is charged on.
That one clause shapes your monthly carry more than most borrowers expect. The two common methods look like this:
| Accrual method | Interest charged on | Payment pattern |
|---|---|---|
| Drawn funds only | Money actually released | Starts small, steps up with each draw |
| Full commitment | Entire loan from day one | Flat and higher from the start |
Neither method is wrong. They simply suit different plans. Drawn-only accrual helps a long rehab where most of the money goes out late. Full-commitment accrual can make sense when most of the loan funds at closing anyway.
Check the term sheet for this clause before anything else. The same headline loan can carry a very different cost of carry depending on how interest accrues.
How Does the Balloon Work?
The balloon is the principal still owed when the term ends. Because nothing amortizes, it equals the balance funded. If only part of the rehab budget has been drawn, the balloon is the amount actually funded, not the original commitment.
Federal guidance gives a precise definition. The Federal Reserve’s published staff commentary on Regulation Z treats a payment as a balloon when it is more than two times a regular periodic payment, and interest-only payments count as regular payments. An interest-only loan with a full payoff at the end clears that bar every time. So yes, it is a balloon loan in the technical sense.
You have four ways to retire it:
1. Sell the property.
2. Refinance into longer-term financing.
3. Pay it off with other funds.
4. Extend the term, if your lender offers extensions.
Only the first two are real plans. The third is a backstop, and the fourth costs money. Lenders know this, which is why they ask about your exit before they ask about almost anything else.
How Is Loan Size Set?
Loan size is set by two limits at once, and the smaller one wins. One limit is a percentage of your project cost. The other is a percentage of the after-repair value, often shortened to ARV. ARV is what the property should be worth once the work is done.
Across the network, the tiers on a fix-and-flip look like this. Each figure is typical, tied to the transaction shown, and varies by lender, property, and experience:
| Transaction | Typical maximum |
|---|---|
| Fix-and-flip, 5+ completed projects | 93% of project cost |
| Fix-and-flip, 2+ completed projects | 90% of project cost |
| Fix-and-flip, fewer than 2 projects | 85% of project cost |
| All flip tiers | Capped at 75% of ARV |
| Bridge purchase, no rehab | Up to 80% of purchase price |
| Cash-out or rate/term refinance | Up to 65% of value |
| Ground-up construction, 3+ projects | Up to 90% of cost, 75% of completed value |
Rehab money works on its own track. Up to 100% of the rehab budget can fund in draws against completed work. That is a share of the rehab budget, not a purchase percentage. There is no true 100% purchase program, and the top tiers are reserved for experienced investors. Loan amounts run up to $5,000,000, with larger loans by exception.
What Does One Deal Look Like Start to Finish?
Run it as a timeline with ratios instead of dollars. These are modeled assumptions, not market data.
Say a flipper has two completed projects, which puts the deal in the 90%-of-cost tier. Assume total project cost equals 80% of the ARV. Ninety percent of that cost is 72% of ARV. That sits under the 75% ARV cap, so the cost tier controls.
Now change one input. Assume project cost equals 85% of ARV, which happens when the purchase is expensive or the rehab is heavy. The same two-project flipper at 90% of cost would land at about 76.5% of ARV. That is over the cap. The 75% ARV limit binds, and the borrower brings more cash. A five-project veteran at 93% of cost would hit the cap by a wider margin, so the cap binds there too. The same lender, the same borrower, and a different outcome, driven by one ratio.
Here is how the carry moves across the hold:
| Stage | What happens | Interest-only carry |
|---|---|---|
| Closing | Purchase funds, rehab budget held back | Lowest on drawn-only accrual |
| First draw | Inspection, then release for finished work | Steps up |
| Later draws | Each phase released after inspection | Steps up again |
| Maturity | Sale or refinance repays full balance | Balloon due in full |
Two things follow. Your payment is only low early if the lender charges interest on drawn funds. And the payoff at maturity includes any accrued interest and fees on top of the funded principal, so ask for a payoff statement ahead of the date.
Which Requirements Does the Structure Create?
Each structural feature forces a requirement. This is the link most borrowers miss, because lenders rarely spell it out.
| Structural feature | Requirement it triggers | What the lender checks |
|---|---|---|
| Balloon at maturity | A credible exit | Sale comps or takeout plan |
| Interest-only carry | Liquidity to pay monthly | Reserves and proof of funds |
| Draw-based rehab | A defined scope of work | Budget, timeline, inspections |
| Short term | Realistic schedule | Contractor plan and experience |
| Cost and ARV caps | Cash at closing | Down payment and source of funds |
Read that table as a pre-application test. If you cannot show a clean answer in the right-hand column, the structure will not work for you, however good the property looks.
What Do Lenders Require From the Borrower and Property?
Underwriting is asset-based, but it is not blind to you. Expect these items on most files, and expect lender-to-lender variation:
- Credit. A 620 minimum score is typical, with additional conditions below 660. First-time investors qualify at the lower leverage tiers.
- Experience. Documented completed projects set your tier. Zero to one projects means the 85% tier. Two or more means 90%. Five or more means 93%.
- Cash. You fund the gap between the loan and total cost, plus your carry.
- Collateral. Non-owner-occupied residential property, 1 to 4 units. Ground-up construction runs to 10 units. Commercial, industrial, land or lots, hospitality, and owner-occupied properties are not offered.
- Plan. A scope of work, a budget, and an exit.
Hard money loans through Lendmire’s network are business-purpose loans on non-owner-occupied property. The FDIC’s compliance manual lists credit extended primarily for business purposes as exempt from Regulation Z. That is why interest-only balloons are routine on investor files and unusual on owner-occupied ones. Your business-purpose certification at closing supports that treatment.
One practitioner observation. Files stall less often on credit than on documentation of the exit. A borrower who walks in with comps, a rent estimate, and a takeout plan gets a cleaner review than one with a better score and a vague plan.
Sale or Refinance: What Does Each Exit Need?
A sale exit needs comparable sales that support your ARV and a listing plan that fits inside the term. A refinance exit needs a takeout lender who will accept the property, the borrower, and the vesting.
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The complete DSCR loans guide covers the full program. In short, a DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.
Several points matter for the takeout:
- Coverage. The lender compares rent to the full payment, including taxes, insurance, and any HOA dues. Many select programs start at 1.00 coverage. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Stronger ratios open better terms.
- Not the same as profit. Clearing 1.00 does not mean positive cash flow. Repairs, vacancy, management, utilities, and capex sit outside the calculation.
- Leverage. A DSCR cash-out on a standard rental tops out around 75% LTV across most of the network. Lenders commonly expect about 6 months of seasoning.
- Appraisal. If the property appraises below your ARV, the takeout loan shrinks, and your balloon may not fit inside it.
- Short-term rentals. Different leverage, history, and coverage rules apply. A purchase tops out at 75% LTV, and refinance and cash-out run around 70%. Expect a 640+ score and about 12 months of hosting history.
Seasoning is the waiting period a lender wants between purchase and refinance. Each lender sets its own. No single federal rule does.
What Happens If You Cannot Pay at Maturity?
Start the conversation before the balloon date, not on it. A lender can often work with a borrower who flags a problem early. A borrower who goes silent has far fewer options.
The usual paths, in order of preference:
1. Refinance. Move to long-term financing before maturity.
2. Sell. Price to move if the exit market has softened.
3. Extend. Some lenders offer extensions for a fee. Confirm in the term sheet whether yours does and what it costs.
4. Bring cash. Pay the balloon down so a smaller takeout works.
5. Default. Foreclosure risk is real. The loan is secured by the property.
Extensions deserve a warning. Repeated extensions can cost more over a year than a longer base term would have. Treat them as an emergency tool, not a plan. Early warning signs include a rehab running behind its draw schedule, an appraisal coming in light, and a takeout lender asking for a longer seasoning period than you assumed.
Build slack into the budget. Interest, draw fees, and inspection fees all raise the payoff, and the payoff can end up above what the takeout will lend.
Which Term Sheet Clauses Control the Structure?
The headline terms get all the attention. The clauses below do the real work. Ask about each one before you sign.
- Interest accrual. Drawn funds only, or the full commitment?
- Prepayment. The network program carries no prepayment penalty, but lenders differ, and some include a minimum-interest period. An early sale may not eliminate those months of interest.
- Extensions. Are they offered, and what do they cost?
- Holdback conditions. What must be finished before each draw releases?
- Draw and inspection fees. Who pays, and how often?
- Rolled-in costs. Closing costs added to the loan raise both your balloon and your monthly interest.
- Cross-collateral provisions. Does one property secure another loan?
- Maturity mechanics. Who sends the payoff statement, and what does it include?
Some term sheets show payments calculated on a 30-year amortization schedule over a short term. The loan still has a balloon at maturity. A long schedule does not mean the loan is paying down in any meaningful way.
Where Does the General Rule Break?
Four edge cases change the picture.
Owner-occupied or consumer-purpose loans. The balloon structure that is routine for investors is not routine here. Consumer-purpose balloons face tighter rules, and the CFPB’s HOEPA compliance guide describes a general ban on balloons for high-cost mortgages, with narrow exceptions. This article covers business-purpose investor loans only.
Lines versus per-deal loans. Some lenders offer a revolving line so you pay upfront costs once instead of per deal. That is a different structure, and it comes with its own requirements.
Takeout limits. A takeout lender may size on your cost basis rather than appraised value if the property is still inside its seasoning window. LLC vesting is also lender-specific, with eligibility depending on program guidelines. Short-term rentals and a lease-up gap can each break a standard exit.
Longer runway. If the project needs more than eighteen months, plan the refinance into long-term rental financing from the start. Lendmire’s piece Can You Structure a Hard Money Loan Interest-Only With a Balloon? covers the term-sheet side in more detail.
Key Terms Defined
Balloon payment. The lump sum of principal due at the end of the loan term.
Interest-only. A payment that covers interest and none of the principal.
Loan-to-cost. The loan amount divided by purchase price plus rehab cost.
After-repair value (ARV). The estimated value of the property once renovations are complete.
Holdback. Rehab money the lender holds back and releases in draws as work is finished.
Draw. A release of held-back funds after an inspection confirms completed work.
Seasoning. The waiting period a takeout lender wants after you buy or finish a property.
Business-purpose loan. A loan made for investment or business use, not for personal or household use.
DSCR. Debt service coverage ratio: monthly rent divided by the full monthly payment on the property.
Are You Ready to Apply? A Quick Self-Check
Answer these before you request a term sheet:
- Can you show the cash gap between the loan and total project cost, plus months of carry?
- Does your ARV hold up against recent comparable sales?
- Is your rehab scope written, budgeted, and tied to a draw schedule?
- Do you know whether you are selling or refinancing, and can you document it?
- If refinancing, does the rent plausibly cover the full payment on the takeout?
- Do you have a plan if the appraisal comes in light?
Fewer than five yeses means the structure will probably strain.
Frequently Asked Questions
Are hard money payments really interest-only for the whole term?
Typically yes on this structure. You pay interest monthly and owe the full funded principal at maturity. Whether the payment is flat or steps up with each draw depends on how the lender accrues interest. Confirm that clause in the term sheet.
Does the balloon equal the original loan amount?
Not always. The balloon equals the principal actually funded. If part of the rehab budget was never drawn, that portion is not owed. If closing costs were rolled in, they raise the balloon.
Is there a monthly payment during the rehab?
Yes. Interest accrues from funding and is paid monthly, though the amount depends on whether interest runs on drawn funds or the full commitment. Plan your reserves around the higher case.
Can a first-time investor qualify?
Often yes, at the lower leverage tiers, with a 620 minimum score typical and extra conditions below 660. Approval varies by lender, property, and experience. Because underwriting is asset-based, the property and the plan carry the file.
How does hard money differ from a DSCR loan?
Hard money is short-term, interest-only, and repaid by a balloon. A DSCR loan is long-term financing that qualifies primarily on property-level rental income, subject to lender guidelines. Many investors use hard money to buy and rehab, then refinance into a DSCR loan once the property is stabilized.
Next Step
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Talk to the team at 828-256-2183.
The best-structured balloon deals share one trait: the exit was written down before the loan closed.
For more on how interest-only payments run until the balloon comes due, see Lendmire’s piece Can You Pay Interest Only on a Hard Money Loan Until the Balloon?.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Savings Grove – Hard Money Loan
2. Federal Reserve – CFPB Official Staff Commentary on Regulation Z
3. FDIC Consumer Compliance Examination Manual, Truth in Lending Act
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 Qualification Rules for a First-Time Investor · Hard Money vs Cash Purchase Requirements for a Rental Property · How to Get a Hard Money Loan for a First Flip With No Track Record
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.