What is the purpose of a hard money loan?
A hard money loan is short-term, business-purpose financing secured by investment real estate. Unlike a long-term loan that is qualified on a borrower’s income, hard money is qualified on the property and the deal: the value, the scope of work and the exit. That makes it the right tool for a property that is being bought, renovated or repositioned and is not yet ready for permanent financing.
Hard money is used for fix-and-flip, bridge, BRRRR and ground-up construction projects, and it is repaid by selling or refinancing the property once the work is done.
How is a hard money loan sized?
For a renovation project, the lender looks at three numbers: the purchase price, the renovation budget and the projected after-repair value. The loan is sized against those numbers, and the borrower brings the difference. The stronger the after-repair value relative to the total cost, the more straightforward the financing.
For a bridge or refinance, the lender looks at the property value and the exit plan. In every case, the exit is central: the lender wants to see a realistic path to repayment. See the after-repair value guide for how the valuation works.
How are renovation funds released?
When a hard money loan funds a renovation, the money is usually released through a draw schedule rather than in one lump sum. You agree on a scope of work and a budget, then draw against it at milestones, with an inspection before each release. A retainage is often held until the project is complete. See the rehab draw schedule guide.
Draws keep the money and the progress moving together, but they also mean the contractor has to hit milestones and produce clean paperwork. Vet the contractor and keep scope changes in writing.
What affects a lender quote?
Hard money pricing depends on the property, the scope of work, the borrower, the loan size and the market on the day the loan is priced. We do not publish pricing, because every deal is different and the numbers move. The right way to get a number is to send the scenario and let a broker compare how several wholesale lenders would treat it.
Hard money is priced and structured for short-term use, which is why the exit matters so much. A deal that stays in hard money longer than planned costs more than one that refinances or sells on schedule.
How is a hard money loan repaid?
Every hard money loan has an exit: a sale or a refinance. For a flip, the exit is usually the sale of the renovated property. For a BRRRR or a hold, the exit is a DSCR refinance once the property is leased. The exit should be chosen before the loan is made, because it changes the renovation and the underwriting.
Hard Money Loan is a Loan Daddy LLC brand, and Loan Daddy LLC is a mortgage broker, not a lender. We arrange and shop financing from wholesale lenders, including private and hard money lenders, and plan the exit with you.
What questions do investors ask?
What is a hard money loan?
Short-term, business-purpose financing secured by investment real estate, qualified on the property and the deal rather than on personal income, and repaid by sale or refinance.
How does a hard money lender decide the loan amount?
For a renovation, the lender looks at the purchase price, the renovation budget and the projected after-repair value. For a bridge or refinance, it looks at the value and the exit plan.
Do you publish hard money pricing?
No. Pricing depends on the property, the scope of work, the borrower, the loan size and the market on the day it is priced.