Hard Money Loans: A Guide for Real Estate Investors

A hard money loan is a short-term loan from a private lender that is based mainly on the property's value, not your income. These loans usually run 9 to 36 months, charge interest only, and come due in one balloon payment that you repay by selling or refinancing. Rates run about 10%: Lightning Docs, which tracks private loan documents, reported a September 2026 average of 10.03% for bridge loans, and you also pay upfront fees called points. Lenders usually cap the loan at 75% to 80% of the as-is value and 65% to 70% of the after-repair value, and can fund in a week or less.

A bridge loan is the broader name for short-term investor financing; a bridge-only loan holds a property without funding a renovation. For long-term rental financing, see tips for getting approved for an investment property mortgage.

How hard money loans are priced and sized

The industry now often calls these residential transition loans (RTLs). The main terms you will see on a quote:

The as-is cap limits the purchase advance at closing. The cost and ARV caps limit the total loan, including the rehab funds released later. Each part is set by the lowest cap that applies to it. Hard money loans are typically backed by a personal guarantee from the owner of the borrowing LLC, and lenders typically check your credit with a soft pull, an inquiry that does not lower your score. Some lenders use a hard pull, so ask before you apply. On a renovation loan, they also review your experience with similar projects, the budget and plan, and your cash for repairs and carrying costs.

Because these loans fund a business or a rental you will not live in, they are business-purpose credit. Federal consumer mortgage rules, including the ability-to-repay rule and the Loan Estimate form, do not apply. Without a standard disclosure, ask each lender for a written term sheet and compare offers line by line.

How draws work

On a renovation loan, the lender holds back the rehab budget and releases it in draws as work is done. You request a draw, the lender inspects or reviews photos, and the funds go out. Urban Institute reports that RTL draws can be funded within a day of the request. Draws are usually tied to completion milestones in the loan agreement, so you or your contractor cover each phase's costs before the matching draw arrives.

Worked example: what the loan costs

You buy a house for $200,000 with a $60,000 rehab budget and an estimated ARV of $360,000. Assume a lender that lends 80% of the price plus 100% of the rehab, up to 70% of ARV, at 10.5% with 2 points.

1. Loan amount: 80% x $200,000 + $60,000 = $220,000. The ARV cap is 70% x $360,000 = $252,000, so the loan is $220,000.
2. Cash at closing: $40,000 down payment, $4,400 in points (2% of $220,000), plus title, appraisal, and other closing costs.
3. Interest: $220,000 x 10.5% / 12 = $1,925 a month once the full loan is out. Over a 9-month project, that is up to $17,325.
4. Total financing cost: about $21,700 before closing costs, or about 8% of the $260,000 project cost.

Ask whether interest accrues on the full loan from day one or only on funds drawn. If the $60,000 goes out in four equal draws at the end of months 1 to 4, charging only on drawn funds cuts interest from $17,325 to about $16,000 in this example.

How a bridge loan differs, and when investors use one

A bridge loan is short-term financing that lets you buy or hold a property until it can be sold or qualify for a long-term loan. Bank regulators describe commercial bridge loans as running up to three years to allow lease-up. A bridge-only loan from a private lender is usually funded in full at closing, with no rehab holdback, and it is underwritten on an appraisal or value estimate plus your guarantee.

Common uses:

• Buying before you sell. The bridge loan funds the new purchase, and the sale of your other property repays it.
• Leasing up a vacant or under-rented building. Long-term lenders want rental income. Arch Mortgage Funding's guidelines for DSCR loans (rental loans approved on rent divided by the payment), for example, reduce the maximum loan by 5 to 10 percentage points to refinance a vacant property. A bridge loan carries the property while you sign leases.
• Fast or auction closings. Private lenders can underwrite and fund in a week or less; bank construction loans take 45 to 60 days.

If the property needs significant work, you need a loan with a rehab holdback, which is the fix-and-flip version described above. Our guide to fix-and-flip financing compares it with other ways to pay for a flip.

Extension fees and default terms

The balloon is due on a fixed date. If the work or sale runs late, you need an extension or another way to pay. Before you sign, find these terms in the note and loan agreement:

• Extension option: how many extensions are allowed, for how long, for what fee (often quoted in points), and what conditions apply, such as being current on payments or having the work complete.
• Default interest rate: the higher rate charged after a missed payment or a missed maturity date.
• Late fees: the amount and the grace period.
• What counts as a default: besides nonpayment, a stalled project, a lapse in insurance, or an unapproved transfer can trigger default.
• Guarantee: whether the lender can pursue your personal assets for any shortfall after a foreclosure sale.

In the example above, a 3-month extension for 1 point would cost $2,200 plus $5,775 of interest, about $8,000 more.

The exit plan the lender expects

Every hard money and bridge lender asks how you will repay the balloon. Have numbers for one main exit and a backup:

• Sale: recent comparable sales that support your ARV, and a realistic time to sell.
• Refinance into a long-term rental loan: the rent, the new lender's limits on loan-to-value and on rent compared with the payment, and its timing rules. For a conventional cash-out refinance, Fannie Mae requires at least one borrower to have been on title for 6 months and the mortgage being paid off to be at least 12 months old, note date to note date. If an LLC you control holds title, its ownership time can count toward the 6 months, but title must move into your own name before the refinance closes. A 9-month hard money loan matures before the 12-month test is met, so you need a longer term, an extension, or a refinance lender with shorter waiting periods. Ask the refinance lender for its rules in writing before you close the hard money loan. Refinancing an investment property explains how much cash a refinance can return.

The buy, rehab, rent, refinance, repeat plan depends on this refinance working. See the BRRRR strategy guide for how to test it before you buy.

How to check a lender's term sheet

1. Get two or three written term sheets for the same deal, and compare rate, points, caps, term, and extension fees side by side.
2. Find every fee: points, underwriting or processing fees, draw or inspection fees, and any exit fee charged at payoff.
3. Confirm how value is set. Ask whether the lender orders a full independent appraisal or uses another valuation; Urban Institute notes some lenders use automated or other methods short of a full appraisal.
4. Check draw rules: how a draw is requested, how fast it is funded, and whether interest runs on undrawn funds.
5. Read the guarantee and default terms listed above before you commit.
6. Ask for references from borrowers who closed and repaid a loan with the lender, and check whether your state requires the lender to hold a license and, if so, that it does.

Lenders that fund from their own or investors' money work much like this; private money lending covers how those loans are arranged.