What Is a Hard Money Loan?
A hard money loan is short-term real estate financing based on the value of the property, not your income or employment history. The property itself is the collateral. If the deal makes sense on paper, you can usually get funded.
Hard money lenders are typically private investors or small lending firms. They move fast because they make their own rules. No bank committees. No 45-day underwriting timelines. Most hard money loans close in 7-14 days.
The trade-off is cost. Hard money loans charge higher rates (10-15%) and upfront fees (1-3 points) because the lender takes on more risk. These are short-term loans, usually 6-24 months. They're designed to be a bridge, not a forever mortgage.
Key point: "Hard money" describes a lending method, not a specific product. It means asset-based, short-term, private financing. Hard money lenders fund fix and flip projects, land acquisitions, bridge deals, commercial purchases, and more.
Here's what a standard hard money loan looks like:
- Interest rates: 10-15%
- Terms: 6-24 months
- LTV: 60-75% of current property value
- Points: 1-3 upfront (1 point = 1% of the loan)
- Down payment: 25-40%
- Rehab funding: Usually not included
- Speed: 7-14 days to close
What Is a Fix and Flip Loan?
A fix and flip loan is a specific type of short-term financing built for investors who buy properties, renovate them, and sell them for a profit. It covers the purchase price and the renovation costs in a single loan.
Fix and flip loans are technically a subset of hard money. They use the same asset-based underwriting approach. But they include features that standard hard money loans don't, mainly renovation funding released in draws.
The biggest difference: fix and flip loans underwrite based on after-repair value (ARV) instead of current value. A property might be worth $200,000 today, but if it will be worth $350,000 after renovation, a fix and flip lender bases their loan on that $350,000 number. A standard hard money lender bases their loan on the $200,000.
That's a major distinction. It means fix and flip loans provide significantly more leverage than standard hard money. See our fix and flip loan programs for current rates and terms.
Here's what a typical fix and flip loan looks like:
- Interest rates: 8-14%
- Terms: 6-18 months
- LTV: Up to 85-90% of purchase price, total loan capped at 70-75% of ARV
- Points: 1-3 upfront
- Down payment: 10-15%
- Rehab funding: Up to 100% of renovation costs, released in draws
- Speed: 7-14 days to close
Fix and Flip vs Hard Money: Side-by-Side
Here's where the two loan types differ on the details that matter most.
| Criteria | Hard Money Loan | Fix and Flip Loan |
|---|---|---|
| Interest Rate | 10-15% | 8-14% |
| Term Length | 6-24 months | 6-18 months |
| LTV Basis | Current "as-is" value | After-repair value (ARV) |
| Down Payment | 25-40% | 10-15% |
| Rehab Funding | Usually not included | Up to 100% (draw-based) |
| Points | 1-3 | 1-3 |
| Credit Minimum | No formal minimum (deal-dependent) | 620-680 |
| Closing Speed | 5-14 days | 7-14 days |
| Best For | Quick acquisition, bridge financing, land | Buy, renovate, and sell properties |
| Experience Required | Often required | Not always (first-timers OK with lower leverage) |
Key Takeaway
Fix and flip loans give you more leverage, lower rates, and built-in renovation funding. Hard money loans are simpler and faster but require more cash upfront and don't cover rehab costs.
- Fix and flip = higher leverage, rehab included, ARV-based
- Hard money = simpler structure, faster close, more cash needed
- Both are short-term and asset-based
When Hard Money Makes More Sense
Hard money isn't always the wrong choice. There are situations where its simplicity and speed win.
You don't need renovation funding
If the property is move-in ready or needs only minor cosmetic work you'll pay for out of pocket, a standard hard money loan is simpler. No draw schedules. No inspections between phases. You close, you do the work, you sell.
You need to close faster than fast
Some hard money lenders close in 5 days. Fix and flip loans with draw structures and ARV appraisals sometimes take a few extra days to set up. If you're competing against cash offers at auction, every day counts.
The property doesn't fit fix and flip criteria
Hard money works for property types that fix and flip lenders may not touch: raw land, commercial buildings, mixed-use properties, or deals in rural areas with limited comps for an ARV appraisal. If you're building from the ground up on vacant land, neither of these loans is the right fit. Check our construction loan vs mortgage comparison for new builds.
You have significant cash reserves
If you can put 30-40% down and fund the rehab yourself, the higher down payment on hard money doesn't hurt you. Some experienced investors prefer the simpler loan structure when cash isn't a constraint.
When Fix and Flip Makes More Sense
For most residential renovation projects, fix and flip loans are the better deal. Here's why.
You want to keep more cash in your pocket
A 10-15% down payment versus 25-40% means you need significantly less cash to get into a deal. On a $250,000 purchase, that's $25,000-$37,500 for fix and flip vs $62,500-$100,000 for hard money. The rest stays available for other deals or unexpected costs.
The property needs real renovation
If you're doing a kitchen, bathrooms, flooring, maybe adding square footage, you need a loan that covers the rehab. Fix and flip loans fund up to 100% of renovation costs through a draw process. Hard money makes you come up with that cash on your own.
You want to maximize return on cash
Less money down + renovation funded = higher return on the cash you actually invest. That's leverage working in your favor. Our fix and flip loan guide walks through a full deal example with the math.
You're a newer investor
Fix and flip lenders are generally more open to working with first-time investors. Terms won't be as favorable as for experienced flippers, but you can still get funded. Many hard money lenders require at least 2-3 completed projects before they'll consider your application.
Pro Tip: Don't pick your loan type first, then find a deal. Find the deal first, then match the right financing to it. Some deals work better with hard money. Most residential flips work better with a fix and flip loan. Let the numbers drive the decision.
Real Deal Breakdown: Same Property, Two Loan Types
Here's what the same deal looks like under each loan type. The property: a 3-bedroom single-family home with a purchase price of $250,000, a rehab budget of $75,000, and an ARV of $425,000.
| Item | Hard Money Loan | Fix and Flip Loan |
|---|---|---|
| Loan amount (purchase) | $175,000 (70% of $250K) | $225,000 (90% of $250K) |
| Loan amount (rehab) | $0 (not funded) | $75,000 (100% of rehab) |
| Total loan | $175,000 | $300,000 (70.6% of ARV) |
| Cash needed at closing | $75,000 (down payment) | $25,000 (down payment) |
| Cash needed for rehab | $75,000 (out of pocket) | $0 (funded via draws) |
| Total cash needed | $150,000 | $25,000 |
| Interest rate | 12% | 10% |
| Origination (2 points) | $3,500 | $6,000 |
| Interest (8 months) | ~$14,000 | ~$20,000 |
| Closing + holding costs | ~$16,000 | ~$16,000 |
| Selling costs (agent, title) | ~$25,500 | ~$25,500 |
| Total project cost | ~$384,000 | ~$392,500 |
| Sale price (ARV) | $425,000 | $425,000 |
| Net profit | ~$41,000 | ~$32,500 |
| Return on cash invested | 27% | 130% |
The profit difference isn't just about rates. The fix and flip loan costs more in total interest (bigger loan balance), but your return on the cash you actually put in is dramatically higher because you needed $25,000 instead of $150,000.
Why this matters: With $150,000 in cash, you could do one deal using hard money, or you could do six deals using fix and flip loans (at $25,000 each). Even if each individual deal makes slightly less, six deals at $32,500 profit beats one deal at $41,000. That's how professional flippers scale.
Exit Strategy: Flip It or Hold It
Before you pick a loan type, decide what you're doing with the property after renovation. Your exit strategy affects which loan makes sense.
Exit 1: Sell the property (traditional flip)
You renovate, list the property, sell it, pay off the loan, and keep the profit. This is the standard exit for both hard money and fix and flip loans. The numbers above show a straight flip scenario.
Exit 2: Refinance into a DSCR loan (hold as rental)
Instead of selling, you rent the property and refinance the short-term loan into a DSCR loan. DSCR stands for debt service coverage ratio. These loans qualify based on the rental income the property generates, not your personal income. Our DSCR loans guide covers the full process.
Here's how it works with the deal above:
- You buy the property for $250,000 and put $75,000 into renovations
- The property is now worth $425,000
- You refinance with a DSCR loan at 75% LTV: $318,750
- That pays off your fix and flip loan ($300,000) and puts $18,750 back in your pocket
- You now own a rental property with almost no cash left in the deal
This is the BRRRR strategy: Buy, Rehab, Rent, Refinance, Repeat. It works best with fix and flip loans because the lower cash requirement lets you move to the next deal faster.
Key Takeaway
Your exit strategy should be decided before you buy, not after. The best investors underwrite every deal both ways.
- Plan to sell? Make sure the ARV supports a profitable sale within your loan term.
- Plan to hold? Make sure the rental income covers a DSCR loan payment at 75% LTV.
- Not sure? Underwrite both and have options.
How to Qualify
Both loan types are asset-based, meaning the deal matters more than your tax returns. But they weigh different things.
Hard money qualification
- Credit score: Flexible. Some lenders don't check credit at all. Most look for 620+.
- Down payment: 25-40% of the purchase price
- Experience: Often required. Most lenders want 2-3+ completed projects.
- Property value: Loan is based on current "as-is" value. Must have strong comps.
- Exit plan: You need a clear plan to repay within the loan term.
Fix and flip qualification
- Credit score: 620-680 minimum, depending on the lender. Higher scores get better rates.
- Down payment: 10-15% of the purchase price
- Experience: Not always required. First-time flippers get funded but with lower leverage and higher rates.
- ARV support: The after-repair value must be backed by comparable sales in the area.
- Scope of work: A clear renovation plan with itemized costs.
- Exit plan: Sell or refinance. Lenders want to see that the numbers work either way.
Pro Tip: If you're a first-time flipper, start with a cosmetic rehab in a strong market. Paint, flooring, kitchen and bath updates. This builds your track record quickly and gets you better terms on your next deal. Lenders care most about whether you can finish a project on time and on budget.
Frequently Asked Questions
Is a fix and flip loan the same as a hard money loan?
Not exactly. Hard money is a broad category of asset-based, short-term real estate financing. Fix and flip loans are a specific type of hard money loan built for investors who buy, renovate, and sell properties. All fix and flip loans are hard money loans, but not all hard money loans are fix and flip loans. Hard money can also fund land purchases, bridge financing, or commercial acquisitions.
What is the 70% rule in house flipping?
The 70% rule says you should pay no more than 70% of a property's after-repair value (ARV) minus renovation costs. If the ARV is $400,000 and rehab costs $80,000, the most you should pay is $200,000 ($400,000 x 0.70 = $280,000 minus $80,000). This rule builds in enough margin for financing costs, holding costs, and profit.
Are fix and flip loans worth it?
Yes, if the deal math works. Fix and flip loans cost 8-14% in interest plus 1-3 points upfront. That sounds expensive, but you only hold the loan for 6-12 months. On a well-structured flip, financing costs run $15,000-$25,000 while the profit is $40,000-$80,000 or more. The speed and leverage let you do deals you couldn't do with cash alone.
What are the downsides of hard money loans?
Higher interest rates (10-15%), upfront points (1-3%), short terms that force a quick sale or refinance, and extension fees if the project runs long. Hard money also requires a larger down payment (25-40%) and usually doesn't fund rehab costs. If the deal doesn't go as planned, the costs add up fast.
Do I need experience to get a fix and flip loan?
Not always. Many fix and flip lenders work with first-time investors. Expect lower leverage (75-80% of purchase price instead of 90%), higher rates, and smaller rehab budgets. After 3-5 completed projects, you qualify for significantly better terms. Hard money lenders are generally stricter about experience.
Can I use a hard money loan for a rental property?
You can use hard money to buy a rental property, but it's not designed for long-term holds. The terms are 6-24 months with high rates. The better strategy: use a fix and flip loan to buy and renovate the property, then refinance into a DSCR loan for the long-term hold. DSCR loans offer 30-year terms at 7-9%, qualifying based on rental income instead of personal income.
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