Hard money and bridge
Hard Money Loans for Real Estate Investors, Explained
When speed matters more than the rate, hard money is the tool. Here is how it works, what it costs, and when it is the right call.
A hard money loan is a short-term, asset-based loan funded by a private lender or fund rather than a bank. The decision rests mostly on the property and the deal, not on your tax returns. That is why investors reach for it when a bank would be too slow or too rigid.
Ready to pick a lender? See how to choose a hard money lender.
How hard money is underwritten
The lender's main question is what the property is worth and how you will pay them back, called the exit. They look at the purchase price, the after-repair value for a project, your down payment, and your track record. Credit matters, but it is secondary to the asset. Because the file is light, closings can happen in days rather than weeks.
Typical terms
- Term: short, commonly six to twenty-four months.
- Cost: a higher rate than a long-term loan, plus origination points. You pay for speed and flexibility.
- Structure: interest-only payments are common, with the full balance due at the end.
- Leverage: based on cost or on the after-repair value, depending on the program.
- Exit required: the lender wants a clear plan to sell or refinance before the term ends.
Bridge loans
A bridge loan is a close cousin: short-term financing that bridges the gap until permanent financing or a sale. Investors use bridges to buy quickly, to reposition a property, or to close before a long-term loan is ready. The mechanics and pricing resemble hard money.
When hard money is the right tool
Use it for speed and short horizons. A time-sensitive purchase, a flip, or a property that does not yet qualify for a long-term loan. For a buy-and-hold you intend to keep, refinance into a long-term DSCR loan once the property stabilizes.
The classic pattern pairs the two: buy and renovate with hard money, then refinance into a DSCR loan. That arc is the BRRRR method. For project financing specifically, see fix-and-flip loans.