What is hard money lending? How to make it work for you

As a real estate investor, you need borrowing options. The flexible investor that makes things happen fast often comes out ahead, especially in a competitive market. 

That’s why many real estate investors rely on hard money lending to build their businesses. 

In the past, a few dishonest lenders blemished the reputation of this loan method. But today, those lenders are mostly a thing of the past. 

There are many reputable hard money lenders with solid lending practices. If you’re willing to network, do your homework, and follow-through, hard money loans are a great way to fund real estate deals. 

Read on to learn more about hard money lending and how to make it work for you.

What is hard money lending?

Simply put, hard money lending is short-term, asset-based lending. 

Hard money loans are also called private money loans and bridge loans. They’re called private money loans because they’re through private individuals or companies, not large financial institutions. Sometimes they’re called bridge loans since they’re designed to “bridge” the gap between the time of purchase and refinancing, or resale.

Hard money lenders use real property as collateral. And they base the loans on the property’s value, rather than the borrower’s credit history, making them ideal for real estate transactions.

The value of the property determines the parameters of the loan. Some hard money lenders use the current value of the property, while others may use the After Repair Value (ARV).

Hard money lending makes it easier for investors to get financing. Unlike banks, these lenders aren’t as concerned about the borrower’s financial history and ability to repay. If a borrower defaults on a hard money loan, the lender can sell the property to get their money back. 

Hard money loans are useful for short term borrowing, making them a good fit for real estate investing. They’re a common way to finance real estate rehabs since most borrowers plan to quickly sell the property or refinance.

Terms of hard money lending

Hard money loan terms vary from lender to lender. That said, many hard money loans have some commonalities, listed below:

  • Loan-to-Value (LTV) ratios are lower than traditional loans, generally 50-70%. 
  • The repayment period ranges from one to five years.
  • Monthly payments can be principal and interest or interest only.
  • Most hard money loans require a balloon payment at the end of the term (one lump sum payment to pay off the loan).

Pros and cons of hard money loans

Hard money lending is an excellent tool for many real estate inventors, but there are pros and cons.


Fast and convenient. Hard money loans aren’t subject to the same strict requirements as bank loans, making it quicker and easier to qualify and close on a loan. Typically there are no credit checks and long underwriting processes. 

Easier to qualify for than traditional loans. Investors with imperfect credit or past foreclosures can be eligible for hard money loans. Hard money lenders often require a down payment. Still, they aren’t as concerned about a borrower’s credit history.

Also, banks and financial institutions can refuse loans for properties in poor condition. But, many hard money loans are explicitly used to rehab run-down properties. Since the property’s value secures the loan, its condition isn’t as much of a concern.

Negotiable. Many hard money lenders will consider negotiations on the terms of a loan. It’s easier to negotiate loan particulars with a private individual or company than a bank with strict policies. 


High loan costs. Hard money loans are more expensive than traditional financing. The origination and loan servicing fees can be more costly. And the interest rate is almost always higher.

Short term. Hard money loans have a much shorter duration than conventional loans. The borrower needs to pay off the loan quickly, through refinancing or selling the property. 

Low Loan to Value (LTV) ratios. Most hard money lenders keep LTV ratios low to hedge their risk. That way, if the borrower defaults, the lender can quickly sell the property and recoup their money.

How do you find a hard money lender?

You can find hard money lenders online, but word of mouth is one of the most reliable ways to find a reputable lender.

The best approach for finding lenders is to network with local real estate investors. Connect with others through meetups, email, friends, or business contacts.

Networking means building relationships. Offer your help to fellow investors whenever you can (without expectation). Remember others’ names, follow up on conversations, and check-in with your connections regularly. You’ll soon have a group of investors you can contact for recommendations and questions. 

Choosing a hard money lender

Getting recommendations from others is an excellent first step to choosing a hard money lender. But that doesn’t mean you should necessarily work with the first one that comes along.

Speak with several lenders and do your due diligence to find a good fit for your financing needs. Try to get a feel for their experience, how they operate, and their loan terms. It’s also wise to ask if they have references – and check them if they do. 

After you’ve spoken with a few lenders, decide which one is the best fit for your business. Once you’ve established a working relationship with a lender, the process will be faster and easier in the future.

What do hard money lenders look for?

While conventional lenders look at credit history, hard money lenders are more concerned about the loan objective. Most hard money loans are for a specific property and project-based (think rehab or construction). 

Hard money lenders want to see evidence of hard numbers. They want to know a borrower’s plan for the project. And they often request documentation of property value(s) and project cost(s).

Here’s what lenders look at:

  • The value of the property Lenders want to know the current and After Repair Value (ARV) of the property, if relevant. 
  • Verification of financial information. Though most hard money lenders don’t look at credit history, they like to know you have your financial ducks in a row. 
  • A down payment. Though the down payment can be negotiable, most lenders want the borrower to put down some money upfront.
  • Scope of the project. Lenders can ask for information about the project’s scope, including estimated costs, contractor bids, and timeline.
  • Borrower’s knowledge and experience. Some lenders might want to know about a borrower’s experience on similar projects. Others will base their decision only on the numbers provided.

How to negotiate with a hard money lender

Since hard money lenders don’t have the same strict policies and procedures as larger financial institutions, it’s easier for borrowers to negotiate loan terms. But before you get into negotiations, it’s wise to prepare. 

Tips for negotiating with a lender:

Understand how hard money lending works. You’re at an immediate disadvantage if you go in without knowing what lenders look for and how hard money lending works.

Know who you’re negotiating with. Are you working directly with an individual hard money lender? If so, they’re using their capital for funding loans, meaning they can negotiate directly with you.

Or are you working with a hard money broker? Brokers are in the business of finding hard money lenders for borrowers (for a fee). If you’re working with a broker, they are the go-between for any negotiations. They typically cannot make decisions without consulting with the lender.

Be prepared to present your project details. Before you approach a hard money lender, you should have information on the property. Have the following information to prepare for negotiating loan terms:

  • Value of the property – before and after repairs (provide comps)
  • Scope and cost of the project (include repair costs, contractor bids, and any other relevant information)
  • Projected timeline (including a buffer for the unexpected)
  • Financials, if it’s a rental property

Follow through on what you say you will do. Once you have a good working relationship with a hard money lender, negotiation is easier. Developing that initial trust pays off in later deals.

Closing thoughts

As an investor, using hard money loans can be a great option – as long as you dot your i’s and cross your t’s. Educate yourself on the ins and outs of hard money. Be sure to network with other investors and do your due diligence. With knowledge and a reliable network, using hard money lending could take your business to the next level.


About the Author:

Amanda has lived in the Des Moines area since 1999, where she and her husband have bought and sold a handful of homes over the years, including a recent flip. Amanda enjoys writing, obsesses about personal finance and is fond of looking at houses. She loves sharing useful tips and info to make life easier for anyone wanting to buy or sell a home. In her spare time, Amanda cherishes time with her family, volunteers with IHYC, gardens, hikes, and practices TaeKwonDo. You can read more of her writing at whywemoney.com