What is a hard money loan and who are the lenders?

A hard money loan is a type of short-term, asset-based financing provided by private lenders or investor groups rather than traditional banks or mortgage companies. These loans are secured by real property (typically real estate) and are known for their fast closing (days or weeks vs. months), flexible underwriting, and higher interest rates. Hard money lenders focus on the value of the collateral property rather than the borrower's credit score or income.

What are typical hard money loan rates and terms?

Hard money loan rates typically range from 8% to 15% annually, with terms of 6 to 24 months. Most loans are interest-only, meaning monthly payments cover only the interest with no principal reduction. Lenders also charge origination fees (2-5% of the loan amount) and may charge prepayment penalties. The higher cost reflects the faster closing, flexible underwriting, and higher perceived risk.

What is the typical LTV for hard money loans?

Hard money lenders typically lend up to 75% of the property's purchase price for purchase loans, or up to 70% of the after-repair value (ARV) for fix-and-flip projects. The specific LTV depends on the property type, location, the borrower's experience, and the lender's risk tolerance. Commercial properties may qualify for higher LTVs.

What are points on a hard money loan?

Points are upfront fees charged by the lender, expressed as a percentage of the loan amount. One point equals 1% of the loan. Typical point charges range from 2 to 5 points. Points are non-refundable and are paid at closing. They compensate the lender for the risk and administrative costs of processing a fast, flexible loan.

When is a hard money loan appropriate?

Hard money loans are appropriate for: fix-and-flip projects needing fast closing, real estate investors with poor credit who cannot qualify for conventional financing, self-employed individuals with hard-to-document income, bridge financing for real estate purchases, and time-sensitive transactions where speed of closing is more important than cost. They are not suitable for long-term financing.

How does a hard money loan differ from a conventional mortgage?

Key differences include: speed (days vs. months), underwriting (asset-based vs. credit/income-based), documentation (minimal vs. extensive), credit requirements (flexible vs. strict), interest rates (8-15% vs. 6-8%), loan-to-value (up to 75% vs. up to 97%), and prepayment flexibility (often no penalty vs. sometimes penalty). Hard money is designed for speed and flexibility, not for cost efficiency.

Can I refinance a hard money loan?

Yes, most borrowers refinance out of a hard money loan into a conventional mortgage once they have improved their credit, stabilized income, or completed renovations. This is called a 'cash-out refinance' or 'take-out loan.' The hard money loan serves as temporary financing while the borrower works on qualifying for better terms. However, refinancing is not guaranteed and depends on your financial situation at that time.

What are the risks of hard money loans?

The main risks are: high cost (interest + points + fees add up quickly), short term (you must have an exit strategy ready), prepayment penalties (some lenders charge them if you pay off early), and the risk of losing the property if you cannot repay. Since the loan is secured by the property, default could lead to foreclosure. It's important to have a clear plan for selling or refinancing before taking a hard money loan.

Hard Money Loan Calculator

A hard money loan calculator is a free online tool that estimates payments, points, and total cost for fix-and-flip projects. It compares LTV, rates, and fees from private lenders to help you evaluate deals. Free, no sign-up required.

Hard Money Loan Details

Purchase Price?The original price you paid for the asset.

LTV Ratio?Enter your ltv ratio.

Interest Rate?The annual interest rate on your mortgage loan.

Loan Term?The length of your mortgage in years. Common terms are 15 or 30 years.

Points?Enter your points.

Origination Fee?Enter your origination fee.

End of inputs

Hard Money Loan Results

Loan Amount

$225,000.00

75.00% LTV

Down Payment

$75,000.00

Your equity

Monthly Payment

$19,990.98

P&I per month

Points Cost

$6,750.00

3.00% upfront

Origination Fee

$4,500.00

2.00% upfront

Total Interest

$14,891.76

Over 12 months

Payment Breakdown

Cost Breakdown

Total Cost Breakdown

Total Interest:$14,891.76

Points + Origination:$11,250.00

Total Cost:$26,141.76

Total Paid:$239,891.76

Key Insights

Your loan points cost of $6,750.00 (3.00% of the loan amount) is substantial. Points are upfront fees paid to the lender and are non-refundable. When combined with the origination fee of $4,500.00, your total upfront cost is $11,250.00. Factor these costs into your fix-and-flip profit calculation.

Your loan term of 12 months is typical for hard money, which is designed as short-term bridge financing — not a long-term mortgage. This is appropriate for fix-and-flip projects where you plan to sell or refinance within a year. Consider a traditional loan if you need longer-term financing.

Your total hard money loan cost of $26,141.76 (interest + points + origination) is a significant expense. For a fix-and-flip project, this cost must be factored into your profit calculation: profit = ARV − purchase price − repairs − total cost. Ensure your projected ARV and repair budget leave sufficient margin.

Hard money loans are asset-based — the lender's primary focus is the value of the property, not your credit score or income. This makes hard money valuable for investors with lower credit, self-employed individuals, or those needing fast closing. However, the higher cost reflects the higher risk the lender takes.

Your hard money loan rate of 12.00% is typical for private asset-based lending. Compare this to traditional financing — hard money is more expensive but can close in days rather than weeks and requires minimal documentation.

Guide

How to Use This Calculator

1Enter the purchase price of the property.
2Set the loan-to-value (LTV) ratio you are seeking — typically 65-75%.
3Enter the annual interest rate quoted by the hard money lender.
4Set the loan term in months — typically 6 to 24 months.
5Enter the points rate (typically 2-5%) and origination fee rate.
6Review the results to see the loan amount, monthly payment, points cost, and total cost.
7Use the AI insights to evaluate whether the hard money loan makes sense for your fix-and-flip or investment strategy.

Formula

How It's Calculated

Hard money loan calculation:

1. Loan Amount = Purchase Price x LTV
2. Down Payment = Purchase Price - Loan Amount
3. Points Cost = Loan Amount x Points Rate
4. Origination Fee = Loan Amount x Origination Fee Rate
5. Monthly Payment (amortizing):
   M = P x [r(1+r)^n] / [(1+r)^n - 1]
   where P = loan amount, r = monthly rate, n = months

6. Total Interest = Monthly Payment x Months - Loan Amount
7. Total Cost = Total Interest + Points + Origination Fee

Example: $300,000 property, 75% LTV, 12% rate, 12 months, 3 points:
  • Loan Amount = $300,000 x 0.75 = $225,000
  • Down Payment = $300,000 - $225,000 = $75,000
  • Points Cost = $225,000 x 0.03 = $6,750
  • Origination Fee = $225,000 x 0.02 = $4,500
  • Monthly Payment = $1,986.35
  • Total Interest = $1,986.35 x 12 - $225,000 = $13,368.20
  • Total Cost = $13,368.20 + $6,750 + $4,500 = $24,618.20

Glossary

Key Terms

FAQ

Frequently Asked Questions

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