The Quick Read: Hard money is short-term, asset-based financing secured by real property. Lenders underwrite it mainly on the deal’s value and exit — not the borrower’s income. Across the wholesale network Lendmire works with, purchase and fix-and-flip acquisition leverage typically runs up to 85% LTV. Cash-out leverage typically tops out around 75% LTV. Fix-and-flip deals can add up to 100% of the rehab budget on top of that. Terms usually land in the 6-12 month bridge range, or 2-5 year fixed options on select programs. This loan type is built for investors who need to move on a deal a bank can’t underwrite in time — flips, rehabs, distressed purchases, and commercial-collateral loans. It is never consumer or owner-occupied financing.
What Is a Hard Money Loan, Exactly?
A hard money loan is a business-purpose loan secured by real estate. The lender’s underwriting decision rests on the property’s value, equity position, and exit strategy. It does not rest on the borrower’s debt-to-income ratio or W-2 history. That business-purpose classification is the whole ballgame. It’s what separates hard money from a consumer mortgage in the eyes of federal law.
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Here’s the practical upshot for borrowers. Loans made mainly for business, commercial, agricultural, or organizational purposes fall outside the consumer disclosure rules that govern a standard home loan. The exemption turns on the size and purpose of the transaction — not on whether someone calls it “hard money.” The Office of the Comptroller of the Currency confirms this mechanism directly under the Truth in Lending Act. The underlying rule sits with the Consumer Financial Protection Bureau.
Here’s the part that trips up a lot of first-time investors. Business purpose does not mean compliance-free. Other federal and state consumer-protection laws can still apply. So can state licensing rules and usury caps, depending on where the property sits and how the loan is structured. Hard money isn’t unregulated. It’s regulated differently.
How Does Hard Money Underwriting Actually Work?
The lender isn’t running debt-to-income math. Instead, the lender asks one question: if this borrower defaults, can I sell the collateral and get my principal back? That’s the entire underwriting posture. Every mechanical step below flows from it.
Step 1 — Asset evaluation replaces income underwriting. Credit and experience still get looked at. But the property’s value carries the file. The gap between the loan amount and the property’s value is the lender’s cushion. The wider that gap, the more room the lender has to absorb a bad exit.
Step 2 — Two appraisals on rehab deals. A fix-and-flip file typically gets an as-is appraisal and a projected after-repair value (ARV) appraisal. The ARV number gets built off comparable sales of already-renovated properties in the area. Both numbers matter. The lender leans on whichever one gives the more conservative read.
Step 3 — Loan sizing against value, cost, or rehab budget. Sizing typically ties to a percentage of as-is value. On a rehab deal, it ties to ARV plus the scope of work. Across the network Lendmire places files with, maximum leverage on purchase, fix-and-flip, and commercial deals generally tops out around 85% LTV. The highest tier is reserved for experienced investors with a demonstrated track record. Cash-out leverage typically runs lower, generally topping out around 75% LTV. On fix-and-flip specifically, some lenders will finance up to 100% of the rehab budget on top of that acquisition leverage. That’s a rehab-cost figure, not a purchase-LTV figure. The two should never get mixed up. There’s no true 100%-of-purchase-price hard money program in this space. If you see that claim somewhere, what’s actually being described is high acquisition leverage plus separately-financed rehab dollars.
Step 4 — Fee structure. Points get charged upfront as a percentage of the loan amount, rather than baked into a pricing quote. Every program prices this differently. It varies by lender, property, and borrower experience. Nothing here is fixed or guaranteed.
Step 5 — Interest-only with a balloon. Most hard money structures are interest-only during the term. The full principal comes due at maturity. This keeps monthly carrying cost lower while a property is vacant or mid-rehab. But it also means the exit — sale or refinance — has to actually happen on schedule.
Step 6 — Paperwork. Expect a promissory note, and a mortgage or deed of trust depending on the state. You’ll also need a title commitment, and an LLC operating agreement if the borrower is entity-titled. Add as-is and ARV appraisals, a scope-of-work or rehab budget for draw-based funding, and a written business-purpose certification supporting the TILA exemption discussed above.
Step 7 — Exit. The loan gets retired by selling the property, or by refinancing into longer-term paper. For a rental-hold investor running a BRRRR strategy, that refinance vehicle is almost always a DSCR loan, once the property is stabilized and leased.
Key Terms Defined
LTV (loan-to-value): the loan amount expressed as a percentage of the property’s current or as-is value — the primary leverage cap on most hard money files.
ARV (after-repair value): the projected value of a property once renovations are complete, used to size rehab-heavy loans against the finished product rather than the current condition.
LTC (loan-to-cost): the loan amount measured against total project cost (purchase price plus rehab budget), used alongside LTV to confirm the borrower still has skin in the deal.
Points: upfront origination fees charged as a percentage of the loan amount rather than embedded in an interest rate.
Interest-only with balloon payment: a repayment structure where the borrower pays only accrued interest monthly and owes the full principal balance at maturity.
Seasoning: the minimum ownership period a lender requires before allowing a refinance based on the property’s new, post-rehab value rather than the original purchase price.
What Leverage and Loan Sizes Actually Look Like
Across the wholesale network Lendmire brokers through, hard money loan amounts generally run from $100,000 to $60,000,000. Terms vary by lender and by file. Bridge terms typically run 6-12 months. Select programs offer 2, 3, or 5-year fixed structures for borrowers who want more runway than a standard flip timeline.
Collateral types stretch across residential investment property, multifamily, commercial, industrial, land, and ground-up construction. That’s one of the bigger structural differences from a DSCR loan, which stays inside stabilized residential rental property. Credit minimums vary by program. Some lenders in the network carry no hard-set minimum at all, with the file leaning almost entirely on equity position and exit plan. That said, no program promises approval without a credit check. Nothing here is a commitment to lend — every file gets underwritten individually.
Who Actually Uses Hard Money?
Fix-and-flip investors use it to acquire and renovate a property inside a tight window a bank couldn’t underwrite fast enough for. BRRRR investors (buy, rehab, rent, refinance, repeat) use it to fund the buy-and-rehab phase before the property is stabilized enough to qualify for long-term financing. Distressed-property buyers use it because the collateral — foreclosure, probate, storm-damaged, or otherwise nonconforming — wouldn’t pass a conventional appraisal in its current condition. Business owners and commercial investors use it on nonconforming commercial collateral, where speed and asset-based underwriting matter more than the lowest possible cost of capital.
Some investors probably shouldn’t reach for hard money. Anyone buying a primary residence should skip it — this is business-purpose financing, full stop. Long-term buy-and-hold investors who could qualify for a stabilized rental loan from day one should also skip it. For that buyer, going straight to a DSCR loan usually beats paying hard money pricing for a property that doesn’t need a bridge.
Where Hard Money Meets DSCR: The Exit
Hard money and DSCR loans aren’t competing products. They’re sequenced tools for the same investor at different points in the deal. Hard money covers the buy-and-rehab phase. DSCR takes over once the property is stabilized, leased, and generating rental income that can carry the payment on its own.
Sub-1.00 coverage on the DSCR side is available through select lenders in the network, though leverage and terms adjust when the ratio sits below that line. On most standard files, 1.00 is where select programs start as a floor — never a universal standard. Stronger ratios above that open better leverage and pricing tiers. Qualification on the refinance side runs primarily on the property’s rental income covering the payment, subject to lender guidelines, not on the borrower’s personal income documentation.
Here’s where a lot of investors get tripped up on this handoff: seasoning. Most conventional refinance-out paths on the DSCR side expect roughly six months of ownership. Only after that will a lender refinance against the new, post-rehab value instead of the original purchase price. That clock starts at the deed recording date — not when renovations wrapped, and not when a tenant moved in. Cash buyers get a partial workaround through delayed financing exceptions. A property purchased without any mortgage or seller financing can sometimes refinance and pull equity without waiting out that seasoning window. Underestimating that seasoning requirement, or overestimating what the ARV appraisal is going to come back at, are two of the most common ways a BRRRR investor’s capital gets stuck longer than planned. Lendmire’s writeup on self-employed mortgage into hard money then refinance walks through one version of that sequencing for borrowers without traditional employment income.
Here’s a quick illustration, using only ratios and percentages — no dollar payment attached. Say an investor buys a distressed duplex using hard money at roughly 80% of as-is value, plus rehab dollars financed on top. Six months later, once units are leased and the seasoning window has passed, the refinance-out DSCR file gets evaluated on the new appraised value and the coverage the leases produce. A ratio comfortably above 1.00 opens the door to better leverage and pricing than a file that limps in right at the floor. That’s the mechanical difference between a deal that recycles capital cleanly and one that stalls at the refinance step.
Where the General Rule Breaks: State and Structural Edge Cases
Not every state treats hard money the same way. Treating it as one uniform national product is the fastest way to misjudge a deal. A handful of states — California, Arizona, Nevada, North Dakota, South Dakota, and Vermont — require licensing for private lenders regardless of whether the collateral is residential or commercial. A second group, including Oregon, Idaho, Utah, and Minnesota, requires licensing specifically for residential investment property but not for commercial. Roughly two dozen states have some form of licensing requirement for private lenders in this space.
Texas runs the opposite direction. Hard money lending on commercial-purpose collateral — including rental homes, retail centers, and office buildings — generally doesn’t require a state lender license. That’s because the Texas Office of Consumer Credit Commissioner treats commercial-purpose loans under a lighter regulatory framework than consumer loans. Federal law still sets a floor underneath all of this: the SAFE Act requires every state to license residential mortgage lending. But states aren’t required to extend that licensing requirement to business-purpose loans.
Usury caps and foreclosure timelines diverge just as sharply, independent of loan purpose. Some states exempt business-purpose loans from usury limits entirely. Others apply usury caps regardless of collateral or purpose. Foreclosure procedure varies too. Some states, like Texas, use streamlined non-judicial processes completed in a matter of weeks. Other states, like New Jersey, use judicial foreclosure processes that can run considerably longer. This variable shapes how conservatively a given lender prices and structures a file in that state.
Collateral type shifts the leverage math too. Commercial-purpose hard money tends to run more conservative than residential fix-and-flip leverage. Land or ground-up construction deals typically see the tightest caps of any collateral type, given the higher execution risk.
Common Mistakes That Sink Hard Money Deals
Underestimating total carry cost is the biggest one. Points plus interest-only carry accrue against a fixed profit window. A flip that runs long eats into margin fast. Modeling the full carry cost over the realistic hold period — not the optimistic one — matters more than chasing a more affordable quote before you commit to the deal.
Ignoring the seasoning requirement on the refinance-out side is the second most common failure mode, discussed above. The third is overestimating ARV. An appraisal that comes back lower than the investor modeled means less capital recovered at refinance than the deal was underwritten to produce.
Frequently Asked Questions
Is hard money legal?
Yes. Hard money loans are legal, business-purpose financing instruments secured by real property. They’re structured to fall outside standard consumer-lending disclosure rules under the Truth in Lending Act’s business-purpose exemption. But they’re still subject to state licensing regimes, usury laws, and other consumer-protection statutes, depending on where the property is located.
Does hard money show up on my personal credit?
It depends on the lender, the entity structure, and whether a personal guarantee is attached to the loan. Because these are asset-based, business-purpose loans, reporting practices vary by program. This is a question worth confirming directly with whichever lender is underwriting the specific file.
Can I get a hard money loan with bad credit?
Some lenders in the network carry no hard credit-score minimum. They lean primarily on equity and exit strategy, though this varies significantly by lender, property, and loan size. Credit still matters on many programs. It’s simply not the deciding factor the way it is on a conventional mortgage. What credit score is needed for a hard money loan walks through how that threshold typically gets evaluated.
What happens if I default on a hard money loan?
The lender’s recovery path runs through the collateral. Foreclosure procedure and timeline depend entirely on the state where the property sits, ranging from a streamlined non-judicial process in some states to a longer judicial process in others. This is exactly why the lender’s underwriting leans so heavily on equity cushion. It’s the buffer that protects principal if a deal goes sideways.
Can I refinance a hard money loan into long-term financing?
Yes, and it’s the standard exit for a stabilized rental hold. Many investors refinance out of hard money into a DSCR loan once the property is leased and stabilized. Lendmire (NMLS# 2371349) brokers that path through select lenders in its wholesale network across 40 markets, including Washington, D.C. Lendmire’s piece on whether a hard money lender will handle the cash-out refinance, and its guide on refinancing hard money after a BRRRR strategy, both dig into that transition in more detail. Lendmire’s complete DSCR loans guide is a good next stop for understanding what that refinance-out loan looks like mechanically.
Tax treatment on hard money financing depends on how the funds are used and how the property is held. Investors should keep clean records and talk to a qualified tax professional before relying on any deduction.
Loan approval is never guaranteed, and nothing here is a commitment to lend. Every scenario described here is subject to lender approval and to borrower, property, and program guidelines, which vary by lender and change over time. This article is general information, not financial, legal, or tax advice.
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.
Program availability, loan terms, and eligibility are subject to lender guidelines, credit approval, property review, and full underwriting. This article is educational and is not a loan offer or commitment to lend.
About Lendmire
Lendmire is a non-QM mortgage broker (NMLS# 2371349). It arranges DSCR financing for real estate investors in 40 markets — 39 states plus Washington, D.C. Deals get underwritten primarily on property cash flow rather than personal income documentation. That structure suits self-employed buyers and entity-owned portfolios well. Lendmire places loans through wholesale investor lenders. It is not a direct lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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. OCC — Help With My Bank: TILA Disclosure Exemptions
2. CFPB — Truth in Lending Act Asset-Size Exemption Threshold
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.
