Hard money loans are the backbone of fix-and-flip financing. Unlike conventional mortgages that take 30-45 days to close and require extensive income documentation, hard money loans can fund in 7-14 days and are primarily underwritten based on the property's value rather than your personal financial situation. That speed and flexibility comes at a cost, and understanding the true expense of hard money is essential for every flipper's profitability.

What Is a Hard Money Loan?

A hard money loan is a short-term, asset-based loan funded by private investors or specialized lending companies. The "hard" in hard money refers to the hard asset (the property) that secures the loan. Lenders focus primarily on the property's value and your exit strategy (how you plan to repay the loan) rather than your personal income, employment history, or debt-to-income ratio.

Hard money loans are used for fix-and-flip projects, bridge financing between purchases, land acquisition, and construction. They are not suitable for long-term holds because the interest rates and fees make them expensive over extended periods.

Current Hard Money Rates in 2026

Hard money loan terms vary by lender, market, and borrower experience. Here are the typical ranges for 2026:

• Interest rate: 10-13% annually (some experienced borrowers can negotiate 9-10%)
• Origination points: 1.5-3 points (each point equals 1% of the loan amount)
• Loan-to-value (LTV): 65-80% of the purchase price or as-is value
• Loan-to-ARV: 65-75% of the after-repair value
• Rehab draw coverage: 80-100% of rehab costs (drawn in stages)
• Loan term: 6-18 months (12 months is most common)
• Closing timeline: 7-14 business days
• Minimum credit score: 600-680 (varies by lender)

Some lenders advertise rates as low as 8%, but read the fine print. Those rates often require 40%+ down payment, 720+ credit, and multiple successful flips on your track record. First-time flippers should budget for the higher end of these ranges.

Understanding Origination Points

Origination points are an upfront fee charged as a percentage of the loan amount. Two points on a $200,000 loan equals $4,000, paid at closing. Points are essentially prepaid interest and represent a significant portion of your financing cost, especially on short-term loans.

Here is why points matter: on a 6-month flip with 2 points and 12% interest, the effective annual rate is closer to 16% when you factor in the points. Lenders know this, which is why many advertise low rates but charge high points. Always calculate the total cost of the loan (points plus interest for your expected hold period) when comparing lenders.

How Rehab Draws Work

Most hard money lenders fund rehab costs through a draw schedule rather than disbursing the full amount at closing. The process works like this:

1. You submit your detailed scope of work and budget with the loan application.
2. The lender holds the rehab funds in escrow.
3. You complete a phase of work (such as demolition and framing).
4. The lender sends an inspector to verify the work is done.
5. The lender releases that portion of the rehab funds to you.
6. Repeat until the project is complete.

Draw inspections typically cost $100-$200 each and may take 2-5 business days. Factor this into your timeline. Some lenders allow 2-3 draws total, while others let you request draws as frequently as needed. More draws mean better cash flow management but more inspection fees.

How to Qualify for a Hard Money Loan

Qualification requirements are less stringent than conventional loans, but lenders still evaluate risk. Here is what most hard money lenders want to see:

• Down payment: 15-30% of the purchase price in cash. This is non-negotiable for most lenders.
• Credit score: Minimum 600-680. Lower scores may still qualify but at higher rates and points.
• Deal analysis: A clear scope of work, budget, and comparable sales supporting your ARV. Lenders want to see you have done your homework.
• Exit strategy: How will you repay the loan? For flips, this means the projected sale. For BRRRR, this means a refinance plan.
• Experience: First-time flippers can still qualify, but experienced borrowers get better terms. Some lenders offer tiered pricing based on number of completed projects.
• Liquidity: Most lenders want to see 3-6 months of reserves (cash to cover payments if the project takes longer than expected).

Hard Money vs. Other Financing Options

Hard money is not the only option. Here is how it compares to alternatives:

• Private money: Loans from individuals (friends, family, other investors). Often cheaper than hard money with more flexible terms, but harder to find and scale.
• DSCR loans: Designed for rental properties, qualified based on property cash flow. Better for BRRRR refinances than for short-term flips.
• Home equity line of credit (HELOC): If you have equity in your primary residence, a HELOC can fund flips at much lower rates (8-10%). Risk: your home is the collateral.
• Conventional loans: 30-45 day close, extensive documentation, but the lowest rates. Not practical for distressed properties or quick closes.

Choosing the Right Hard Money Lender

Not all lenders are created equal. When evaluating hard money lenders, consider these factors beyond just rate and points:

• Speed to close: Can they close in 10 days? Some deals require it.
• Draw process: How fast do they release rehab funds? Slow draws stall your project.
• Prepayment penalties: Avoid lenders that charge penalties for early repayment. You want to sell and repay as quickly as possible.
• Extension policy: If your project takes longer than expected, what are the extension fees?
• Reputation: Read reviews and talk to other investors. A cheap loan from an unreliable lender can cost you a deal.

Calculating the True Cost of Hard Money

Use a hard money calculator to model the complete cost of your loan before committing. Input the loan amount, interest rate, points, term, and draw schedule to see the total financing cost. Then compare that to the expected profit on the deal. A good rule of thumb: if financing costs exceed 25% of your expected gross profit, the deal may not have enough margin to absorb surprises.