The simple definition
Hard money is short-term, asset-based real estate financing for investors. The "hard" refers to hard assets — the real estate itself secures the loan. Underwriting focuses on the property and the deal rather than on the borrower's income or job stability.
When investors use hard money
- Fix-and-flip acquisition + rehab. Buy distressed, rehab, sell to retail buyer.
- BRRRR phase 1. Buy + rehab + stabilize, then refinance into long-term DSCR.
- Bridge financing. Cover the gap between purchase and permanent financing.
- Fast-close acquisitions. Auction, tax-deed, estate sales requiring same-week funding.
- Properties not financeable by banks. Major rehab scope, structural issues, vacancy damage.
- Portfolio scaling. Investors past conventional DTI caps use asset-based underwriting.
How a hard money loan is structured
A typical Chicago hard money loan for a $300,000 acquisition with $80,000 rehab on a property with $450,000 ARV looks like:
| Acquisition price | $300,000 |
|---|---|
| Loan to cost (LTC) | 90% of purchase = $270,000 |
| Rehab budget (held in escrow, drawn down) | $80,000 (100% financed) |
| Total loan | $350,000 |
| ARV cap (80% of $450,000) | $360,000 — loan fits under cap ✓ |
| Interest rate | 10.5% (interest-only) |
| Points | 2 ($7,000 origination fee) |
| Term | 12 months |
| Monthly interest payment | ~$3,063 |
| Borrower cash to close | ~$30,000 down + $7,000 points + closing = ~$45,000 |
The underwriting checklist
Hard money lenders typically review:
- Property valuation (appraisal or BPO)
- Rehab scope and budget reasonableness
- ARV verification via comparable sales
- Title search and lien clearance
- Borrower credit (typical minimum 600 FICO)
- Borrower liquidity (3–6 months of rehab carry + reserves)
- Investor experience (funded-deals history)
- Exit strategy and timeline
- For business-purpose verification: LLC vesting or affidavit
Hard money vs. private money
Both lend on real estate, both are short-term, both are asset-based. The difference is institutional vs. relationship-driven. Hard money typically means national non-QM platforms (Kiavi, Lima One, Renovo) with standardized terms. Private money typically means individual lenders, smaller funds, or family offices with deal-by-deal underwriting. Read the full comparison →
What hard money costs in total
On the $300K acquisition / $80K rehab example above, total cost of capital over a 12-month hold runs approximately:
- Origination points: $7,000
- Interest (12 months at 10.5%): ~$36,750
- Closing costs: $3,000–5,000
- Total cost of capital: ~$47,000–49,000
For a fix-and-flip projecting $90K–120K in profit, this cost of capital is acceptable. The math gets harder on lower-margin deals — disciplined operators always run the cost of capital in their initial deal analysis.
Hard money pitfalls to avoid
- Underestimating rehab budgets. Most over-budgets are 15–30% on rehab. Build contingency.
- Overstating ARV. Use conservative comps. Lenders will pull theirs separately.
- Underestimating carry costs. Interest + property tax + insurance + utilities adds up over a 9-month rehab.
- Slow exit. Most hard money is 12 months. If the rehab takes 9, you have 3 months of marketing time before extension fees kick in.
- Not reading the prepayment language. Some loans have prepayment penalties or minimum interest provisions that affect early-exit economics.
Hard money FAQ
Hard money is short-term, asset-based real estate financing for investors. It's called "hard" because the loan is secured by hard assets — the real estate itself — rather than the borrower's ability to repay from income. Underwriting focuses on the property's purchase price, after-repair value (ARV), rehab budget, and exit strategy.
Conventional mortgages underwrite the borrower (income, DTI, credit). Hard money underwrites the deal (property, leverage, exit). Conventional is 30 days+ to close at 6–8% interest. Hard money closes in 7–14 days at 9.5–12.5% interest. Conventional won't lend on properties needing significant rehab; hard money will.
Currently in Chicago: 9.5%–12.5% interest, 1–3 points origination, 6–24 month terms. Experienced borrowers with funded-deals history price toward the low end; newer borrowers and distressed deals price toward the high end.
Most hard money lenders cap at 80% of after-repair value (ARV) — sometimes 75–80% of as-is purchase price plus 100% of rehab budget, capped at 80% of ARV. The lower of the two ratios applies.
7–14 days is typical. Same-week close is possible with local private money operators on clean deals. National hard money platforms typically run 10–21 days end-to-end depending on title work and documentation.
Underwriting is primarily on the property — appraisal or BPO, rehab scope review, ARV verification, title search. Borrower experience and credit get reviewed but aren't the primary qualifying criteria. Most lenders require a basic credit check (600+ FICO typical) and proof of liquidity for rehab and reserves.
Three primary exits: (1) sell to retail buyer after rehab (flip), (2) refinance into long-term DSCR or conventional financing (BRRRR), (3) sell to another investor (wholesale exit or portfolio sale). Lenders want clear exit visibility before funding.
Generally no. Hard money lenders structure loans as business-purpose to remain exempt from consumer mortgage regulations (TRID, ATR/QM). Most lenders require non-owner-occupied investment property status, often verified with an affidavit.