What Is a Hard Money Loan?

Short answer

A hard money loan is a short-term loan, typically 6 to 24 months, from a private or specialty lender that underwrites mainly on the property's value and the deal, not on your tax returns or DTI. Investors use it to buy and renovate properties, close in days to compete with cash, or bridge until a sale or refinance. It costs more than a bank loan: higher rates, origination points and sometimes interest-only payments. Hard money is a business-purpose loan for non-owner-occupied property.

Definition

Hard money (private money) lending is secured by real estate and priced for speed and flexibility. Lenders size the loan as a percentage of purchase price, of total project cost, or of after-repair value, and expect to be repaid from a sale or a long-term refinance.

Worked example

An investor buys a distressed house in Little Havana for $350,000, with a $90,000 renovation budget and an after-repair value of $560,000. The hard money lender funds 85% of purchase ($297,500) plus 100% of rehab ($90,000) in draws, for a $387,500 loan, which is 69% of ARV. Terms: 12 months, interest-only at 11%, 2 points. Points: $387,500 x 0.02 = $7,750. Monthly interest once fully drawn: $387,500 x 0.11 / 12 = about $3,552. Over an 8-month project: 8 x $3,552 = $28,417. Total financing cost about $36,167 plus Florida doc stamps $387,500 x 0.0035 = $1,356 and intangible tax $775. Sale at $560,000 minus purchase, rehab, financing, taxes and selling costs leaves the profit. Rates are illustrative and vary daily.

When hard money makes sense

• Fix and flip or fix and hold projects where speed and rehab funding matter more than rate.
• Auction or estate purchases that must close in days.
• Properties that do not qualify for conventional financing because of condition, open permits or building issues.
• A bridge until a sale or a DSCR refinance.
• Borrowers whose tax returns do not support a bank loan but whose deal and equity do.

What to watch

Read the term sheet for points, interest reserve, draw fees, extension fees and prepayment terms. Know your exit before you close: a realistic ARV, a sale timeline or a DSCR refinance that the property will support. Rates vary daily; call for today's pricing.

In South Florida

Miami-Dade has a deep hard money market serving flippers in older neighborhoods (Little Havana, Allapattah, North Miami, Hialeah), investors buying condos that no conventional lender will touch, and foreign investors who need to close fast. Local considerations: Florida doc stamps and intangible tax apply to every hard money loan, lenders want permits pulled for renovation work, and insurance on a vacant property under renovation (builder's risk) is expensive. Most Miami hard money loans exit into a DSCR loan or a sale within a year. See hard money loans and fix and flip loans.