A hard money loan is a short-term loan secured primarily by a property's value rather than the borrower's credit or income. They're fast and flexible, but expensive — understanding exactly what they're built for keeps you from using one when a cheaper option would work.
Who actually lends hard money
Hard money lenders are typically private individuals or specialized companies, not banks. Because they're underwriting the property rather than the borrower, approval can happen in days instead of the weeks a conventional mortgage takes.
The cost of speed
| Hard Money Loan | Conventional Mortgage | |
|---|---|---|
| Approval speed | Days | Weeks |
| Interest rates | Typically much higher | Market rate |
| Term length | 6 months to a few years | 15-30 years |
| Primary underwriting factor | Property value / equity | Borrower income and credit |
These are not a substitute for a regular mortgage
Costs beyond the interest rate
The interest rate is only part of the cost. Most hard money loans also charge "points" upfront — typically 2-5% of the loan amount, paid at closing — plus origination fees and sometimes a prepayment structure that assumes you'll hold the loan for its full short term. Add these together before comparing a hard money quote to any other financing option.
Who they're actually for
- Real estate investors doing a fix-and-flip who need to close fast and plan to refinance or sell quickly.
- Buyers who need to close before a conventional mortgage can be arranged, with a clear plan to refinance shortly after.
- Situations where the property itself doesn't yet qualify for conventional financing, such as one needing significant repairs.
