What is a hard money loan? Asset-based lending explained

A hard money loan is a short-term real estate loan where the collateral — not your tax returns — carries the decision. It closes in days, costs far more than a bank loan, and exists for one reason: speed and certainty on a deal a bank will not touch on the timeline you need.

The defining features

Asset-based underwriting: the lender lends against the property’s current value and, for rehab loans, its after-repair value (ARV). Credit and income are checked but rarely decisive.
Short term: 6 to 24 months, usually interest-only with a balloon payment at maturity.
High cost: rates commonly in the 9% to 14% range in recent markets, plus 1 to 4 origination points and fees — see rates, points and LTV.
Speed: approval in days, closing in one to three weeks, sometimes faster.
Business purpose: nearly always made to investors on non-owner-occupied property, which places the loans outside most consumer mortgage rules.

Who uses hard money

Fix-and-flip investors buying distressed homes that do not qualify for conventional financing; landlords using the BRRRR method who will refinance after renovation; buyers who need to close before a bank can underwrite; developers bridging to construction or permanent financing; and borrowers with strong collateral but complicated income. The common thread is a clear, short exit.

Where the money comes from

Hard money lenders range from individual investors lending their own capital to funds, family offices and institutional platforms that originate at scale and sell or securitize the loans. The origination fee and the interest spread are the business model; many lenders also earn fees on extensions and draws.

Costs in a worked example

A $200,000 purchase with $50,000 of rehab, financed at 85% of cost on a 12-month loan at 11% with 2 points: loan of roughly $212,500; points of $4,250 at closing; interest of about $1,950 a month (interest-only); six months to sell costs about $11,700 in interest plus points and fees — roughly $17,000 of financing cost on a $250,000 project. That number has to fit inside the expected profit with room for surprises.

When it makes sense — and when it does not

It makes sense when the property cannot be financed conventionally, when speed wins the deal, and when the exit is realistic within the term. It does not make sense as long-term financing, for a primary residence (consumer hard money is heavily regulated and rarely worth it), or when the projected profit cannot absorb two or three extra months of carrying costs.

Frequently asked questions

Is hard money legal?

Yes. It is regulated state by state through usury and lender licensing laws, and federally through anti-fraud rules; business-purpose loans to investors are exempt from most consumer mortgage regulations. See our state pages for the rules where the property sits.

Does a hard money loan show on my credit report?

Usually not when made to an entity; the lender checks your credit but typically does not report the loan. A foreclosure or judgment, however, would appear.

Can I get a hard money loan with bad credit?

Often, if the collateral and down payment are strong; many lenders set a floor in the 600s and price worse credit with a higher rate or lower LTV rather than a denial.