Hard Money Loans for Fix-and-Flip

A hard money loan is a short-term, asset-based mortgage where the lender's primary underwriting focus is the value and condition of the real estate collateral, not the borrower's credit history or income. Hard money lenders are typically private companies, not banks — which means faster closings and more flexible terms, at a higher cost than conventional financing.

Who uses hard money

• House flippers who find a distressed property below market value, close quickly, renovate, and sell — all within a defined hold period. Conventional lenders rarely finance properties in poor condition; hard money lenders base the decision on after-repair value (ARV).
• Real estate developers funding ground-up construction or major renovation draws.
• Auction and foreclosure buyers who need funding on a very short timeline.

How hard money underwriting works

Hard money lenders evaluate three primary factors:

1. After-repair value (ARV). What will the property be worth once renovations are complete? Lenders typically finance up to a set percentage of the ARV.
2. Loan-to-value.The loan amount divided by the property's current value or ARV.
3. The exit strategy. Selling after renovation, refinancing into a DSCR or conventional mortgage, or paying off from other assets — the lender wants a clear, achievable plan.

Documentation is dramatically shorter than a conventional mortgage: purchase contract, proof of funds, property photos, a renovation budget and scope of work, and credit authorization. No tax returns, no pay stubs, no employment verification.

Typical hard money structure

• Loan duration: months to a few years, not decades
• Maximum LTV generally 65% to 80%, based on ARV
• Minimum credit score is low or sometimes not a factor at all
• Property types: 1-4 unit residential and small commercial
• Origination points are common — ask about the fee structure up front

Hard money pricing carries a significant premium over conventional financing, reflecting the speed, the flexible underwriting, and the short hold — factor the full cost of capital into your margin before you commit to the deal.

When hard money makes sense — and when it doesn't

It makes sense when speed is critical, the property needs significant repairs that disqualify it from conventional financing, or your personal finances are too complex to qualify for a bank loan on the timeline you need. It does not make sense if you plan to hold the property long-term as a rental (a DSCR loanis more cost-effective for that), if the renovation budget or ARV is uncertain, or if you already qualify for conventional financing on a property that's in good condition.

Running the numbers on a flip

Before pursuing a hard money loan, work through the math:

• Estimate the ARV from comparable renovated properties nearby
• Calculate the maximum loan amount at the lender's LTV-of-ARV cap
• Add your costs: down payment, closing costs, renovation budget, and holding costs
• Confirm your target profit margin still holds after all of the above

Example:ARV $400,000. Loan at 70% of ARV: $280,000. Purchase price $220,000. Renovation budget $60,000. Closing and holding costs $15,000. Total cash needed before loan proceeds: $295,000. Sale proceeds after payoff and total costs determine the margin — a thin margin means the deal needs a lower purchase price, a higher ARV, or a tighter renovation budget before it's worth doing.

Related structures

Hard money is closely related to two other short-term products: bridge loans, which are backed by existing equity rather than the subject property, and fix-and-flip financing, which shares hard money's ARV-driven underwriting but is purpose-built with draw schedules for the renovation budget. Once the property is rehabbed and rented, refinancing into a DSCR loan is the common long-term exit for investors who decide to hold rather than sell.

This article is for general education only and is not a commitment to lend. See the full investor loan program lineup at 4Homes.