How does a hard money loan work?
A hard money loan is a short-term, interest-only loan, usually 6 to 18 months, where the lender underwrites the property's equity and the exit rather than your income, typically lending 65 to 75 percent of value at 10 to 14 percent interest with two to four points. You close in five to ten days, make interest payments during the term, and pay it off by selling or refinancing.
The process, step by step
| Step | What happens | Typical time |
|---|---|---|
| Application | Property address, purchase price, rehab budget, exit plan, and a short personal financial statement | Day 1 |
| Term sheet | Rate, points, leverage, term, and draw terms if rehab is financed | Day 1 to 2 |
| Valuation | Desktop valuation, broker opinion, or inspection; sometimes a full appraisal | Day 2 to 6 |
| Title and entity | Title report, LLC documents, insurance binder | Day 3 to 7 |
| Closing | Loan documents signed, funds wired | Day 5 to 10 |
| During the term | Interest-only payments; rehab draws released against inspected work | Months 1 to 12 |
| Payoff | Sale proceeds or a refinance pays the balance plus any exit fee | At exit |
Ranges vary by lender.
What the lender checks
The property's value. As-is value and, for rehab projects, after-repair value. The loan is sized so the lender is covered if you default and they have to sell.
The exit. How the loan gets paid: sale comps or a refinance you can qualify for.
Your cash. The down payment and enough to carry interest if there is no interest reserve.
Credit, lightly. Many hard money lenders have no minimum score. They do look for recent foreclosures or bankruptcies and open judgments.
Experience, for rehab. Prior flips or renovations improve leverage and pricing.
What it costs
On a $400,000 loan at 12 percent with three points held for nine months: interest of $36,000, points of $12,000, and closing costs of a few thousand, for a total near $50,000. That is the price of speed and light underwriting. Bridge loans cost less when you qualify for them.
Rehab funding
If the loan includes a rehab budget, the lender holds it back and releases draws as work is completed and inspected. Draws typically fund within five to ten days of the request. You pay for the work first, then get reimbursed from the draw, so keep working capital.
When hard money is the right tool
Fast closes, heavy rehab, auction purchases, borrowers with credit problems, and properties in a condition no permanent lender will finance. It is a tool for a specific job, not a long-term loan.
How CommFi handles it
Our lending desk prices the deal first and funds direct when it fits. When the property or timeline calls for a hard money specialist, the desk searches a database of 7,000+ lenders and the ones that fit compete on rate and speed. Zero upfront fees.
Related reading
Related questions
- What does a hard money lender look at?
- The property's value, the exit, and your down payment. Credit and income get light review compared with a bank.
- How fast does a hard money loan close?
- Five to ten business days is typical once title is clear and the valuation is done.
- Do hard money loans require monthly payments?
- Yes, interest only, unless the lender funds an interest reserve from the loan.
- How do I pay off a hard money loan?
- By selling the property or refinancing into a permanent loan such as a DSCR or bank loan.
- Is hard money only for flippers?
- No. It is used for fast closes, distressed purchases, rentals that need work before a permanent loan, and borrowers whose credit blocks other options.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.