Hard money is short-term financing secured primarily by the property itself rather than by the borrower's income. Where a conventional mortgage asks "can this person repay over 30 years?", a hard money lender asks "is this project worth enough to protect my loan for the next 6 to 18 months?"
That focus on the asset makes hard money fast and flexible — and expensive. Understanding what it costs and exactly what job it does will keep you from using it for the wrong deal.
The Job Hard Money Does: Bridging Purchase and Rehab
Distressed properties are hard to finance conventionally: they may not qualify for a standard mortgage in their current condition, and traditional underwriting is too slow for competitive offers. Hard money fills that gap. It bridges the period from purchase through rehab, until you exit by reselling the property or refinancing into a long-term loan.
A typical structure funds a large share of the purchase price plus some or all of the rehab budget, with rehab funds released in draws as work is completed and inspected. Lenders size the total loan against the project's after repair value (ARV), because the finished value is what secures them.
The timeline looks like this: close fast with hard money, renovate over several months, then either sell (a flip — the sale pays off the loan) or refinance into a long-term rental loan such as a DSCR mortgage (a BRRRR — the new loan pays off the hard money). The hard money loan is scaffolding: essential during construction, gone when the project stands on its own.
What Points Are — and What They Cost
Hard money pricing has two parts: interest for the months you hold the loan, and points — origination fees charged up front as a percentage of the loan amount. One point equals 1% of the loan.
The math is straightforward: 2 points on a $150,000 loan = $3,000, typically paid at closing or netted out of your proceeds. Three points on the same loan would be $4,500.
Points matter more than they look because of the short timeline. A fee paid up front on a loan you hold for only six months is effectively a much larger annualized cost than the same fee spread over a 30-year mortgage. This creates two practical rules:
- Points punish short holds proportionally more. The faster your flip, the bigger the share of total borrowing cost that comes from points rather than interest.
- Compare lenders on total cost, not just the rate. A loan with fewer points can beat one with a lower rate on a short project. Run both offers through your deal math for your expected hold period.
Always budget points as a real project cost, right alongside rehab and holding costs. They come out of your profit dollar for dollar.
Making Sure the Exit Works
Because hard money is short-term, the exit is not a detail — it is the deal. Before borrowing, pressure-test both possible exits:
- Sale exit: Does the ARV, minus selling costs and every dollar of purchase, rehab, points, and interest, still leave the profit you need? What if the sale takes three extra months?
- Refinance exit: Will the property's rent support the long-term loan, and will the refinance proceeds (often a percentage of the after-repair appraised value) be enough to pay off the hard money in full? Remember that many long-term lenders want a few months of seasoning first — months your hard money interest keeps accruing.
The most common hard money disaster is a project that runs long: every extra month adds interest, and a loan reaching maturity before the exit closes can force a costly extension or a rushed sale. Build slack into your timeline and a contingency into your budget.
The free Shouldirefi Deal Analyzer lets you model the whole bridge — points, monthly interest, hold time, and both exit paths — so you can see your estimated all-in borrowing cost before you sign anything.
All figures are estimates for informational purposes only — not financial advice. Consult a qualified professional before making financial decisions.