Overview
Hard money loans are the standard financing tool for fix-and-flip projects, but knowing that hard money exists as a category doesn't tell you what actually happens between applying and getting your rehab funded. This lesson walks through a typical fix-and-flip hard money loan from start to finish: what the loan is structured around, what a lender wants to see from you as a borrower, how underwriting and closing actually work, and how you get your rehab dollars released once you own the property.
Every lender structures things a little differently, but the shape of the process, and the categories below, are consistent across most hard money lenders you'll work with.
Key Takeaways
- Hard money loans are underwritten around the deal, project type, loan-to-cost, and after-repair value, more than around your personal financial profile, though your experience level still affects your terms.
- Qualification is based upon the property and the paperwork, not W-2s or tax returns, with most lenders requiring an LLC or corporate entity to close.
- Closing is faster than a conventional loan, but still involves real underwriting: a valuation, a documented scope of work, and proof of funds for your portion of the deal.
- Rehab funds are released through draws, not upfront, reimbursing you as work is completed and inspected, not funding the full rehab budget at closing.
- Extensions are common and usually available, but they cost money and require getting ahead of your lender before your loan matures, not after.
Loan Structure
A fix-and-flip hard money loan is typically structured around a few core variables: what kind of property qualifies, how much the lender will lend and for how long, and how much leverage they'll extend against the deal.
Project Types
Most hard money lenders will fund single-family homes, condos, townhomes, and small multi-family properties (typically 2-4 units). Larger multi-family or commercial properties usually fall outside a standard fix-and-flip hard money box and require a different loan product entirely.
Loan Limits & Terms
Loan amounts and terms vary significantly by lender and by the size of the deal, but fix-and-flip hard money loans are almost always short-term and interest-only, typically ranging from 6 to 24 months, with the full principal due at the end of the term (a balloon payment) when you sell or refinance. Terms, minimums, and maximums differ enough between lenders that it's worth comparing a few before assuming any single number is standard.
Rates & Points
Hard money loans carry higher rates than conventional financing, reflecting the speed and flexibility the lender provides. As a general reference point, hard money rates commonly fall somewhere in the 9% to 13% range, with 1.5 to 3 origination points charged at closing, though both move up or down based on your experience level, the deal's leverage, and the lender you're working with. In addition to points, expect possible underwriting or doc fees, often a few hundred to around a thousand dollars, on top of the interest itself.
Using the worked example above, 2 points on a $320,000 loan would run about $6,400 due at closing, on top of your down payment and closing costs, and worth budgeting for as part of your total cash-to-close, not an afterthought. Rates and points both tend to improve as your experience level and track record with a lender grow, a borrower with several completed flips can often negotiate toward the lower end of these ranges, or better.
Leverage Ratios (LTC / ARV)
Hard money lenders typically express how much they'll lend using two metrics:
- Loan-to-Cost (LTC) - The percentage of your total project cost (purchase price plus rehab budget) the lender will finance.
- Loan-to-ARV - The percentage of the property's projected after-repair value the lender will finance, acting as a ceiling on the total loan regardless of your project cost.
A lender might, for example, finance a high percentage of your purchase price and 100% of your rehab budget, capped at a maximum percentage of ARV. The exact percentages vary by lender and by your experience level, so this is worth confirming directly with any lender you're evaluating.
A worked example: Say you're purchasing a property for $300,000 with a $50,000 rehab budget, and an ARV of $425,000 once the work is complete. A typical hard money structure might look like:
- 90% of purchase price financed: $270,000
- 100% of rehab budget financed: $50,000
- Total loan amount: $320,000
- Loan-to-Cost: $320,000 ÷ $350,000 total project cost = about 91% LTC
- Loan-to-ARV check: $320,000 ÷ $425,000 ARV = about 75% of ARV, within a typical 70-75% ARV cap
In this example, you'd need roughly $30,000 out of pocket for the remaining purchase price, plus closing costs and points, rather than financing the deal at 100%. If the lender's ARV cap were lower, say 70% instead of 75%, your maximum loan would be capped at $297,500 regardless of the LTC math, meaning you'd need to bring more cash to the deal to make up the difference.
PRO TIP
Run your deal through the
FlipperForce Rehab Estimator and
House Flipping Calculator before you approach a lender. Walking in with a formula-backed rehab budget and ARV estimate, instead of a rough guess, speeds up underwriting and signals you're a prepared borrower.
Borrower Qualifications
Hard money lenders qualify borrowers differently than a bank does. The deal and your documentation matter more than a traditional credit and income file.
Experience Levels
Most lenders will work with beginners, and many define "beginner" as someone with 0 to 2 completed flips, still eligible for funding but often at slightly more conservative leverage or a higher rate. Once you've completed around 3 or more flips, typically within the past 24 months, many lenders move you into a more experienced tier, unlocking higher leverage (sometimes into the 90%+ LTC range) and more competitive rates. Investors with a longer track record, 10 or more completed projects, can often negotiate the best terms a given lender offers, sometimes including reduced documentation requirements since the lender already has confidence in their execution.
Credit Requirements
Hard money lenders generally use credit as one factor among several, not the primary qualifying factor the way a conventional lender does. Most will run a credit check, often a soft pull for an initial quote, but a lower credit score is less likely to disqualify you outright than it would with a conventional mortgage, especially if the deal itself is strong.
Income Verification
Hard money loans are asset-based, meaning qualification is centered on the deal rather than your personal income. Most lenders won't require W-2s, tax returns, or a debt-to-income calculation the way a conventional lender would.
Entity Requirement
Most hard money lenders require the loan to close under a business entity, an LLC or corporation, rather than to an individual. If you haven't yet formed an entity for your flipping business, this is worth setting up before you're ready to close your first deal.
The Underwriting Process
Hard money underwriting moves faster than a conventional loan, but "faster" doesn't mean "no underwriting." Here's roughly what happens between application and closing.
How Long It Takes
Initial review of a complete application package is often turned around within 1 to 2 business days. From there, most hard money lenders can close and fund within 7 to 14 days of a signed purchase agreement, meaningfully faster than the 30 to 60 days a conventional loan typically takes. That timeline assumes your documentation is complete upfront, incomplete files are the most common reason a closing slips past two weeks.
Asset-Based Valuation
Rather than relying solely on a traditional third-party appraisal, many hard money lenders use an in-house valuations process, or a faster appraisal product, to verify the property's after-repair value. This is part of what allows hard money lenders to move faster than conventional lenders.
Documents You'll Typically Need
- Signed purchase agreement
- LLC formation documents / EIN
- Proof of funds for your portion of the down payment and closing costs
- An itemized scope of work / rehab budget
- Comparable sales (comps) supporting your ARV estimate
Having these ready before you apply, rather than assembling them after, is the single biggest factor in how fast your loan actually closes.
Explore our Lender Network of 50+ Hard Money Lenders
The Draw Process
This is the part of a hard money loan that surprises first-time borrowers the most: your rehab budget isn't handed to you upfront. It's released in stages, called draws, as work is completed and verified.
How the Draw System Works
Most hard money loans use a reimbursement-based draw system. You (or your contractor) complete a phase of the rehab, then submit a draw request for that phase to be reimbursed from your loan's rehab budget, rather than receiving the full amount at closing.
Inspection Method
Before releasing a draw, most lenders require verification that the work was actually completed, either through an on-site inspection or, increasingly, through photo and video documentation submitted directly through an online portal or mobile app.
Typical Turnaround
Once a draw request is submitted and the inspection is approved, funds are typically wired within about 3 to 5 business days. Lenders using photo/video-based inspections through a mobile app can sometimes turn draws around faster than lenders requiring an in-person site visit, since there's no need to schedule and wait for an inspector.
Draw Fees
Most lenders charge a processing or inspection fee per draw request, commonly somewhere in the $250 to $500 range per draw, which should be factored into your overall project budget rather than treated as a surprise cost partway through the rehab.
Continuing the worked example: on a $50,000 rehab budget split into 4 draws, at $400 per draw, that's $1,600 in total draw fees over the life of the project, on top of the interest and points already covered above. Some lenders structure rehab budgets into more draws (5-6) for larger projects, or fewer (2-3) for smaller cosmetic rehabs, so it's worth asking a lender how many draws they typically expect for a project your size before you close.
Reality check
Plan your project's cash flow around the draw system, not around having the full rehab budget available on day one. You (or your contractor) generally need to front the cost of each phase of work before being reimbursed, which means your own cash reserves, not just your loan, need to cover the gap between paying a contractor and receiving your next draw.
Extensions
Fix-and-flip hard money loans are short-term by design, and rehabs run long more often than investors plan for. If your loan's maturity date is approaching and you're not ready to sell or refinance, most hard money lenders offer extensions, typically for an additional fee.
The investors who navigate this smoothly are the ones who raise the issue with their lender well before the maturity date, not the week the loan comes due. Lenders are generally far more willing to work with a borrower who flags a likely delay early than one who calls asking for an emergency extension at the deadline.
If your exit strategy is a BRRRR refinance rather than a sale, this same maturity timing issue applies, and is covered in more detail, including how it interacts with DSCR loan seasoning requirements, in
DSCR Loans & the BRRRR Refinance.
Where to Go From Here
For a broader comparison of hard money, DSCR, and new construction loans, see
Loans for Flipping Houses & BRRRR. And before you commit to any lender,
verify who you're working with.
Ready to find a lender? Browse the
FlipperForce Lender Partner Network to compare vetted hard money lenders by state, including their typical rates, leverage, and loan structure.
