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.

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.

Beyond those three headline factors, a hard money underwriter is also looking at the borrower and the deal team, not just the collateral. Track record matters: a first-time flipper and an investor with a dozen completed projects can receive different leverage, different draw oversight, and different pricing on the same property, even though hard money doesn't run a full income and employment file the way a conventional loan does.

Other items that commonly show up in the file:

• 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.

Points and fees

Hard money is typically priced with origination points — a percentage of the loan amount charged at closing — on top of the interest rate. Points compensate the lender for the speed and flexibility of the underwriting and for the short hold period over which that cost has to be recovered. Ask for the complete fee schedule up front: origination points, underwriting or processing fees, draw-inspection fees, extension fees if the project runs long, and any exit or payoff fee. Comparing two quotes on points alone, without also comparing the draw process and extension terms, is a common way borrowers underestimate the true cost of the loan.

Draw schedules

When a hard money loan funds renovation work in addition to the purchase, the renovation portion is rarely disbursed as a lump sum. Instead, the lender typically releases an initial advance at closing and then funds the rest of the construction budget in draws — reimbursements tied to completed, inspected work. A typical draw cycle: the borrower or contractor completes a phase of work, requests a draw, the lender (or a third-party inspector) verifies the work is done, and the lender releases funds, often net of a retainage percentage held back until the project is fully complete. Because contractors usually need to be paid before reimbursement arrives, the borrower generally needs enough of their own capital to bridge the gap between paying for work and receiving the draw.

LTC and ARV limits

Two different leverage concepts are both in play on a typical fix-and-flip loan, and they're not interchangeable. Loan-to-cost (LTC) caps the loan as a percentage of the total project cost — purchase price plus renovation budget. Loan-to-ARV caps the loan as a percentage of the projected after-repair value. A lender may apply both limits and fund whichever produces the lower loan amount, which means a deal with a low purchase price but a large renovation budget can bump against the LTC limit even when the ARV-based number would allow more. Ask which limit is controlling the specific loan amount before assuming the higher of the two applies.

Every hard money loan needs a credible way to be paid off before maturity, and the two most common paths — selling the renovated property or refinancing into longer-term financing — carry different risks and different timelines.

Selling after renovation

A sale exit depends on completing the work on budget, listing at a price supported by current comparable sales, and closing within the loan's remaining term. Market conditions can shift between purchase and completion, so it's worth stress-testing the plan against a longer marketing period and a sale price below the original ARV estimate, not just the base case.

Refinancing into a DSCR loan

For rental property owners who decide to hold rather than sell once the renovation is complete, refinancing the hard money balance into a DSCR loan is the common long-term exit — the property's own rental income qualifies the new loan rather than the borrower's personal income. That refinance typically requires the property to be stabilized (renovation complete, often leased or ready to lease) and can be subject to a seasoning period before the lender will use the after-repair value rather than the original purchase price. Our guide to taking a hard money loan into a DSCR takeout refinance walks through how that transition typically works, and the BRRRR refinance timing and seasoning guide covers the seasoning mechanics in more depth, since a hard-money-to-DSCR exit and a BRRRR refinance are frequently the same transaction viewed from two different angles.

Bridging to the next purchase instead

Some investors use a short-term refinance or a bridge loan to free up equity from a completed project before a sale closes, so they can move on the next acquisition without waiting on the first deal's proceeds. Our guide to bridge loans for buying before you sell covers how that structure differs from hard money and where each one fits.

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.

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 rental property owners who decide to hold rather than sell.

Ready to run actual numbers on a deal? Start an investment-property scenario to compare hard money against bridge and DSCR financing side by side for the specific property and exit plan.