Hard Money Terms Defined
Hard Money Terms Defined: Practical Glossary for Real Estate Investors and Borrowers
Hard money lending covers short-term, asset-backed loans that let investors and property owners close time-sensitive deals or fund renovations and acquisitions. This glossary breaks down the essentials you need to evaluate offers, size loans, and move from underwriting to funding quickly. Borrowers often turn to hard money when banks are slow or require extensive paperwork; private lenders prioritize property equity and a clear exit strategy, which speeds approval and funding. Below we define core loan types, valuation measures like LTV and ARV, the legal documents and closing steps you’ll encounter, borrower profiles and eligible property types, plus practical checklists to prepare an application. Read on for straightforward examples, step-by-step calculations, and comparison tables showing typical LTV ranges, terms, and time-to-close for common programs. Where helpful, we map terms to lender workflows and show how an equity-focused lender can approve and fund deals in days when property value and exit plans align.
What Is a Hard Money Loan and How Does Private Money Lending Work?
A hard money loan is a private, short-term loan secured mainly by real estate collateral rather than by full credit or tax verification. Lenders underwrite to property equity, after-repair value (ARV) and the borrower’s exit plan to set loan size and terms—this produces faster, more flexible underwriting for investors who need capital quickly. Asset-based lending uses a trust deed (or similar lien) and a promissory note to secure the loan and define remedies if a borrower defaults. Those features translate into clear borrower benefits—speed, flexible structuring, and pragmatic underwriting—that help capture time-sensitive opportunities. The sections that follow explain what an asset-first approach means for deal execution and contrast private lending with traditional bank underwriting so you can see when hard money is the right tool.
What Does “Hard Money Loan” Mean in Real Estate Investing?
In real estate, a hard money loan is a short-term, business-purpose loan where the property itself is the primary collateral and underwriting anchor. Loan amounts are typically set by LTV or ARV, terms commonly run 6–24 months for transactions or rehab projects, and pricing reflects higher interest and fees versus conventional mortgages to compensate for speed and risk. Borrowers use hard money for purchases, rehab and resale, bridge financing, and foreclosure bailouts when timing and liquidity matter. Knowing how collateral drives approval helps investors structure exits that lenders rely on to estimate risk and set acceptable LTVs—which explains why private lenders can often close faster than banks.
How Is Private Money Lending Different from Traditional Bank Loans?
Private lenders focus on property equity and exit options rather than exhaustive borrower documentation, producing quicker approvals and more flexible collateral structures. Banks usually demand full income verification, lower LTVs, stricter appraisals, and longer processing times; private lenders accept higher cost in exchange for speed and flexibility. That trade-off means private loans often close in days instead of weeks or months, with borrowers trading higher interest and shorter terms for rapid access to capital. This distinction highlights when investors should choose private money—time-sensitive purchases, major rehabs, or emergency liquidity—and sets up our review of common program types and uses.
What Are the Main Types of Hard Money Loans and Their Uses?
Hard money includes several program types tailored to investor needs: purchase loans, fix-and-flip loans, bridge loans, foreclosure bailouts, commercial hard money, DSCR loans, P&L-based approvals, cash-out loans, land and construction loans, and long-term hard money. Each program serves a specific use—acquisition, short-term rehab, gap financing, or income-property stabilization—and has characteristic LTVs, terms, interest ranges, and speed-to-close. The sections below define common programs, list typical documentation, and include a comparison table to help match your scenario to the right product. After reading these descriptions, you should be able to shortlist options that align with your exit plan and timeline.
Fix-and-flip loans are ARV-driven short-term loans used to buy and renovate properties for resale. They commonly combine purchase-plus-rehab financing with a draw schedule tied to completion milestones. Lenders size loans using an estimated ARV minus a margin—often funding up to 70–75% of ARV or 60–75% of purchase-plus-rehab depending on program specifics. Required documents typically include a rehab budget, contractor bids, scope of work, purchase contract, and borrower experience; draw inspections and release procedures govern rehab disbursements. Successful flips rely on conservative ARV estimates, disciplined budgets, and a clear resale plan—practices that keep lenders comfortable and help close faster.
- Intro: The table below compares common hard money programs so investors can match needs to product attributes.
- Summary: Use the comparison to shortlist programs that match your LTV appetite and time horizon.
| Loan Type | Typical LTV / Coverage | Term & Interest Range | Typical Speed to Close | Primary Use Case |
|---|---|---|---|---|
| Fix and Flip | 70–75% of ARV; 60–75% purchase+rehab | 6–12 months; ~10–18% interest | 5–7 days when docs complete | Short-term rehab and resale |
| Bridge Loan | 60–70% LTV | 3–12 months; variable interest | 5–14 days | Quick acquisition pending permanent financing |
| Foreclosure Bailout | Varies by equity and timing | Short-term; higher interest | As fast as trustee-sale timelines | Prevent trustee sale, refinance or restructure |
This comparison highlights common trade-offs so you can align loan structure with exit timing and capital needs.
What Are Fix and Flip Loans and How Do They Work?
Fix-and-flip loans fund acquisition and renovation, underwriting to an after-repair value and disbursing construction funds on a draw schedule tied to verified milestones. The lender assesses ARV, deducts a margin, and funds purchase plus phased rehab costs—so loan sizing is driven by projected resale proceeds rather than borrower income. Typical documentation includes the purchase agreement, itemized rehab budget, contractor bid, and exit plan. Lenders monitor progress through inspections before each draw to protect both sides and keep the project on a fast resale timeline.
How Do Bridge Loans and Foreclosure Bailout Loans Support Investors?
Bridge loans fill short-term timing gaps—funding a purchase until permanent financing is available or a sale closes—while foreclosure bailouts stop trustee-sale timelines by covering arrears or restructuring obligations. Both are short-term, equity-focused solutions with quick underwriting and higher costs reflecting urgency and legal timing. For bailouts, lenders prioritize equity and immediate payoff needs and can act quickly when documentation supports the remedy. Understanding foreclosure timelines and a lender’s ability to move fast is critical when evaluating bailout viability.
What Are Commercial Hard Money Loans and DSCR Loan Terms?
Commercial hard money adapts asset-based underwriting to income-producing properties—lenders evaluate value, lease rolls, and stabilization plans alongside equity. DSCR (Debt Service Coverage Ratio) is a common metric: DSCR = Net Operating Income / Annual Debt Service. Lenders set minimum thresholds to ensure cash flow covers debt; in private lending those thresholds often sit around 1.0–1.25. Lenders may use rent rolls, P&Ls, or pro forma income to calculate NOI. Commercial hard money balances asset value with income performance to size loans and manage repayment risk.
How Are Loan-to-Value and After-Repair Value Calculated and Used?
Valuation metrics—Loan-to-Value (LTV) and After-Repair Value (ARV)—determine maximum loan amounts and define the lender’s risk cushion in hard money underwriting. LTV expresses the loan as a percentage of an agreed valuation and limits leverage; ARV projects the property’s post-rehab market value and informs combined purchase-plus-rehab funding. These metrics, combined with exit assumptions, set safe lending levels. The following sections break down formulas, provide numeric examples, and explain why conservative ARV estimates protect both borrower and lender during rehab.
What Is Loan-to-Value Ratio and Why Is It Important?
Loan-to-Value (LTV) = Loan Amount / Property Value, expressed as a percentage; it measures leverage and lender exposure. For example, a $300,000 loan on a $500,000 property equals a 60% LTV—lower LTVs give a bigger equity buffer for market swings. In hard money, typical LTV ranges vary by program—purchase loans may target lower LTVs while fix-and-flip underwriting to ARV allows higher leverage against projected value. Lenders use LTV to set pricing, covenants, and reserves, so structure your deal to meet program thresholds.
How Is After-Repair Value Determined for Fix and Flip Projects?
After-Repair Value (ARV) estimates what a property should sell for after renovations, using recent comparable sales, trend adjustments, and realistic finish levels. A simple ARV approach: if renovated comps sold for $450,000–$500,000 and your scope matches them, choose a conservative midpoint to avoid overstating resale proceeds. Reliable ARV estimates require credible contractor timelines, a detailed rehab budget, and local comps; lenders will discount aggressive projections to protect their margin. Conservative ARV practice reduces the chance of funding shortfalls and smooths approvals.
- ARV/LTV example: purchase $200,000 + rehab $50,000 → projected ARV $400,000 → lender funds to 70% ARV = $280,000 → sufficient to cover purchase and rehab if approved.
This numeric example shows how ARV and LTV work together to set realistic loan amounts.
| Valuation Metric | Definition | Typical Hard Money Range | Example Calculation |
|---|---|---|---|
| LTV | Loan / Valuation | 60–75% depending on program | $300k loan / $500k value = 60% |
| ARV | Post-rehab market value | Used to size rehab loans (70–75% ARV funding) | Comparable sales estimate ARV $400k → 70% ARV = $280k |
| DSCR | NOI / Annual Debt Service | 1.0–1.25 typical thresholds | NOI $60k / Debt $50k = 1.2 DSCR |
What Are the Key Terms in the Hard Money Loan Process and Legal Agreements?
Borrowers will encounter legal and process terms—promissory note, trust deed, lien, escrow instructions, draw schedule, default, and foreclosure—each with specific implications for closing, funding, and remedies. Knowing these terms and the documents lenders require speeds approvals and prevents last-minute delays. This section defines core process elements, outlines typical underwriting and closing steps, and provides a practical checklist so you know what to prepare. Subsequent subtopics walk through underwriting mechanics, legal instruments that secure loans, and how prepayment provisions affect borrower costs over the loan term.
What Happens During Underwriting, Closing, and Escrow?
Underwriting reviews the property, title, valuation (appraisal or internal valuation), rehab budget, exit plan, and borrower experience; lenders assemble an underwriting package and set approval conditions. Common required documents include purchase contracts, contractor bids, scope of work, proof of funds for any down payment, and title reports. Once conditions are met, escrow coordinates title transfer, lien recording, and funding; escrow instructions and closing statements finalize payoffs and disbursements. A fast private lender can approve within 24 hours when the package is complete and close funding in as little as 5–7 days—but borrowers must deliver clean title documents and accurate rehab budgets promptly to meet those timelines.
- Underwriting Checklist: The most common documents lenders review and why they matter.
- Escrow Steps: Title review, payoff coordination, and funding instruction sequencing.
- Timeline Summary: How quick approvals translate into funding actions.
| Process Term | What It Means | What Borrower Should Provide |
|---|---|---|
| Promissory Note | Borrower’s promise to repay the loan | Signed note acknowledging terms |
| Trust Deed / Deed of Trust | Security instrument recorded against the property | Clear title and signed deed documents |
| Draw Schedule | Plan for rehab disbursements | Detailed rehab budget, milestones, contractor invoices |
What Are Promissory Notes, Liens, and Foreclosure in Hard Money Lending?
A promissory note documents the borrower’s repayment promise and terms, while a lien or trust deed secures the loan against the property and is recorded publicly. If a borrower defaults, the lender enforces remedies in the trust deed—often a non-judicial foreclosure in many states—which can lead to sale of the collateral to satisfy the debt. Knowing how liens are recorded and what triggers foreclosure timelines helps borrowers manage risk and plan exits like a refinance or sale. Clear communication with your lender and conservative exit planning reduce the likelihood of enforcement actions.
How Do Prepayment Penalties and Grace Periods Affect Borrowers?
Prepayment penalties, when included, compensate lenders for expected interest and origination economics when a loan pays off early; structures vary from percentage-based fees to point schedules over time. Grace periods and cure provisions give borrowers short windows to remedy missed payments before default remedies start. Borrowers should factor prepayment costs into exit planning—if you expect a quick refinance or sale, a prepayment fee can materially affect net proceeds. Understanding these terms before closing ensures you select programs aligned with your intended hold period and liquidity needs.
Who Are the Borrowers and What Property Types Qualify for Hard Money Loans?
Borrowers commonly include real estate investors, property owners seeking business-purpose loans, and owner-occupants financing business-use properties; underwriting emphasis shifts based on borrower type and intended use. Investors are evaluated on experience, portfolio strategy, and exit plan; property owners need to document business use and legal entity structure. Eligible properties range from residential investment homes and distressed assets to mixed-use and many commercial types, subject to condition, location, and a clear exit strategy. The following sections clarify borrower categories and list eligible property types so you can self-assess likely program fit.
What Defines an Investor, Property Owner, and Owner-Occupied Borrower?
An investor is a borrower focused on income or resale and is judged by track record, exit strategy, and ability to execute rehab or leasing plans; lenders may request prior flip records or portfolio details. A property owner seeking business-purpose funds must document intended use and entity structure. An owner-occupied borrower using the property for business operations provides documentation of the operation and may follow a different underwriting path. Each borrower type changes documentation expectations, underwriting focus, and suitable programs.
- Common documentation by borrower type:
Investor: project pipeline, previous flips, rehab budgets.Property owner: business-use declaration, entity formation documents.Owner-occupied: lease or business registration, proof of operations.
These distinctions help identify the most efficient loan program and underwriting path.
Which Property Types Are Eligible: Investment, Distressed, Mixed-Use, and More?
Hard money lenders accept many property types: single-family rentals, small multifamily buildings, mixed-use properties, vacant or distressed homes, land for construction with a clear plan, and select commercial assets that pass additional diligence. Eligibility depends on condition, clear title, environmental issues for commercial parcels, and the lender’s ability to value the asset conservatively. Properties with severe title defects, environmental hazards, or no clear exit strategy may face extra requirements or be declined. Knowing which attributes matter lets borrowers prepare accurate disclosures and realistic exit plans.
- Eligible property types include:
Single-family investment homesSmall multifamily buildingsMixed-use and select commercial propertiesVacant land for construction with a clear plan
Accurate property disclosures and a credible exit strategy improve approval odds across these asset types.
Why Choose Fidelity Funding for Hard Money Loans?
Fidelity Funding is a Glendale, California–based hard money lender focused on clear loan information and helping investors secure fast funding through equity-based underwriting and flexible programs. We emphasize quick approvals—often within 24 hours when the package is complete—and commonly fund loans in 5–7 days using in-house underwriting and checklist-driven processes. Our product suite includes purchase loans, fix-and-flip, cash-out, bridge loans, foreclosure bailout solutions, seller carry-backs, land and construction loans, commercial hard money, and longer-term hard money financing—giving investors options that match project types and exit strategies.
How Does Fidelity Funding Provide Fast Approvals and Flexible Terms?
We use in-house underwriting, standardized checklists, and equity-focused decisioning to evaluate deals quickly; that reduces back-and-forth and enables approvals in roughly 24 hours for complete packages. Practical borrower actions—submitting a clear purchase contract, realistic rehab budget, and title documents—shorten review time and help reach funding within typical 5–7 day windows. Our investor-friendly options, including second or third position financing in select cases and programs without prepayment penalties on certain loans, add flexibility for layered capital structures. For time-sensitive deals, a concise underwriting packet aligns your readiness with our expedited workflow.
What Are the Advantages of Equity-Based Lending Over Credit-Based Loans?
Equity-based lending prioritizes the property and exit value, improving access for borrowers with limited credit or incomplete tax histories but solid collateral and a realistic exit plan. This approach speeds approvals because valuation and exit strategy often give a clearer short-term repayment path than lengthy income verification. For investors, equity-based underwriting allows higher leverage on projects with strong ARV or rent-roll potential and offers practical solutions for restructures or bailouts where timing is critical. Borrowers with challenged credit can still secure funding if the property and plan demonstrate sufficient equity and an executable exit.
How Do Recent Market Trends Impact Hard Money Lending in California?
Recent market shifts have tightened conventional lending in many areas, increasing demand for alternative financing that fills timing and underwriting gaps. Higher interest-rate environments and bank pullback push more investors to private lenders for bridge and rehab needs. Improvements in valuation tools and workflow automation are shortening decision cycles, making approval-in-24-hour claims realistic when documentation is accurate. In California, where transaction timing and local comps strongly influence ARV, lender familiarity with regional trends and foreclosure timelines helps manage underwriting risk. These dynamics reinforce why equity-focused, locally capable lenders matter for time-sensitive strategies.
If you’re ready to move on a time-sensitive deal, Fidelity Funding can help: prepare a clear deal packet (purchase contract, rehab budget, title information), and submit the materials for expedited review. Our Glendale team provides factual guidance, fast underwriting, and flexible program matching so you can close when speed matters most.
Frequently Asked Questions
What are the typical interest rates for hard money loans?
Typical hard money rates range from about 8% to 18%, depending on lender risk assessment, borrower profile, and property condition. These rates are higher than conventional mortgage rates because loans are short-term and fund quickly. Also factor in origination and other fees when comparing offers—those costs affect your total project economics. Always compare terms from multiple lenders to find the best fit for your deal.
How quickly can I expect to receive funding from a hard money lender?
Many hard money lenders can close in 5 to 14 days from application when documentation is complete. The streamlined underwriting—focused on property value and exit plan rather than exhaustive borrower paperwork—is what enables faster funding. Actual timelines depend on document completeness and the lender’s process, so prepare a complete package to speed things up.
Are there any risks associated with hard money loans?
Yes. The primary risks are higher interest and fees, which can strain returns if the property doesn’t sell or generate expected income. Default can lead to foreclosure and loss of the asset. To mitigate risk, use conservative ARV estimates, maintain disciplined budgets, and have a clear exit strategy. Open communication with your lender also helps avoid surprises.
What documentation is typically required for a hard money loan application?
Typical documents include the purchase agreement, a detailed rehab budget, contractor bids, proof of funds for any down payment, and a clear exit strategy. Lenders may also ask for borrower experience, prior flip records, or P&Ls for income-producing assets. A complete, organized package speeds underwriting and improves approval chances.
Can I use a hard money loan for properties that need significant repairs?
Yes. Hard money is commonly used for properties needing major repairs—fix-and-flip projects, for example. Lenders assess ARV to size loans so you can finance purchase and renovation costs, but you’ll need a detailed rehab budget and a realistic timeline to convince the lender and support draw requests.
What happens if I default on a hard money loan?
If you default, the lender may begin foreclosure proceedings to recover the debt; the exact process varies by jurisdiction but often involves selling the property. Review the promissory note and trust deed carefully before closing so you understand remedies and timelines. A solid exit plan and proactive communication can help you avoid default.
Are hard money loans suitable for first-time real estate investors?
They can be, particularly for time-sensitive opportunities, but hard money carries higher costs and risk. First-time investors should have a clear market understanding and exit strategy, and consider partnering with experienced operators or advisors to reduce execution risk. Proper planning and conservative financials are essential.
Conclusion
Knowing hard money terms lets real estate investors make smarter, faster decisions and seize time-sensitive opportunities with confidence. By prioritizing property equity and exit strategy, hard money offers the speed and flexibility traditional financing often lacks. If you’re ready to move forward, gather your documentation and reach out to us for a swift review. Let Fidelity Funding help you close when speed and certainty matter.
