What is “Hard Money”?

“Hard money” is a term applied to real estate loans obtained from a private capital lender as opposed to a bank or institutional lender such as a life insurance company or pension fund. A hard money loan is a type of short-term loan used primarily in real estate transactions. These loans are secured by real estate and are often used by real estate investors, house flippers, or developers who need quick access to capital.

The name originally derived from the fact that private lenders were willing to look at loans that had complications and were more difficult (or “hard’) to do than normal real estate loans that banks fund. Sometimes this difficulty is called “hair,” as in this loan has a lot of hair to it.

What Are Common Uses of Hard Money Loans for Real Estate Investors?

Real estate investors often use hard money loans to quickly secure funding for opportunities that require fast closings and flexible lending terms. Hard money loans are particularly useful when a traditional financial institution is too slow or unavailable. Whether purchasing distressed properties, funding renovations, or acquiring rental properties, hard money loans provide investors with the capital needed to move quickly in competitive markets.

Fix-and-Flip Projects

One of the most common uses of hard money loans is fix-and-flip projects. Investors use these loans to purchase, renovate, and resell properties for profit. The short-term nature of hard money loans (typically 6–24 months) aligns perfectly with the flipping process, allowing investors to complete renovations and sell the property. Additionally, private lenders can often finance a percentage of both the purchase price and rehab costs, minimizing the investor’s out-of-pocket expenses.

Buying Distressed or Foreclosed Properties

Traditional lenders often avoid financing foreclosures, short sales, or properties in poor condition. Hard money lenders, however, can provide fast capital to acquire these assets, allowing investors to rehab and either sell or rent them. Since foreclosure auctions often favor cash buyers, hard money loans enable private investors to be more competitive.

Bridge Loans for Real Estate Transactions

Investors also use hard money loans as bridge loans, which provide temporary financing until they secure a long-term loan or sell another property. This is particularly useful for those looking to purchase a new investment property before selling an existing one, ensuring they don’t miss out on valuable opportunities due to funding delays.

Cash-Out Refinancing

Investors with equity in an existing property can use hard money loans to pull out cash for new investments. The funds can be used for property improvements, acquisitions, or portfolio expansion. This strategy allows investors to maximize the potential of their current holdings while continuing to grow their business.

Rental Property Acquisition 

For investors following a buy-and-hold strategy, hard money loans help them quickly acquire rental properties and then refinance with a conventional mortgage later. This approach is ideal when purchasing undervalued rental properties that require renovations before they qualify for traditional financing.

Land Loans for Future Development

Hard money loans are also used for land purchases and new construction projects. Commercial real estate investors planning to develop raw land often struggle to secure financing from traditional banks, as vacant land lacks collateral value. Some hard money lenders, however, are willing to fund these deals based on the current appraised value. These loans normally do not exceed 50% of the as-is appraised value.

Construction & Development Financing

Similarly, developers and investors can use hard money loans for large-scale renovations and new construction projects, securing funding even before a property is fully built. Since traditional lenders often have stricter requirements for new developments, hard money loans allow investors to move forward with construction quicker. Only a few hard money lenders will finance ground-up construction loans.

By providing fast access to capital and flexible lending terms, hard money loans allow real estate investors to act quickly on time-sensitive deals that might not be possible with traditional loans. Whether for flipping houses, acquiring rental properties, or funding development projects, hard money loans remain a crucial tool for scaling real estate investment portfolios.

How Did Hard Money Loans Become Popular Among Real Estate Investors?

After 2011, with the breakdown in the financial system, hard money loans became more common as banks were increasingly paralyzed by a lack of capital and an increase in governmental regulations. This shift in sources of funding is sometimes referred to as the “Shadow Banking System,” and the underlying term for this type of underwriting is “Asset-Based Lending.” Hedge funds are becoming a significant source of capital for these types of loans.

 

 

How Does Hard Money Benefit A Borrower?

Hard money loans offer many advantages over traditional financing. The hard money approval process is much faster, as private capital lenders can make a decision quickly – generally in a few days as opposed to banks, which can take a few months. Hard money lenders can also fund the loan quickly – sometimes in just a couple of days – again far more quickly than traditional lenders.

Hard money lenders typically require significantly less documentation than banks and are often willing to overlook issues that would derail a traditional loan. Factors such as limited cash liquidity or the absence of guarantors with strong financial statements can be deal-breakers for a bank, but a private capital lender may still fund the loan if the collateral is strong enough.”

What Are The Downsides To A Hard Money Loan?

The primary disadvantage of a private capital loan is that they are typically somewhat more expensive than bank or institutional real estate financing. Interest rates are higher with hard money loan rates ranging from 9% up to as high as 15% depending on the lender as opposed to typical bank rates in the 6% to 7% range (with life companies sometimes funding loans at a slightly lower rate). Life companies normally have longer “lock-ins,” which prevent prepayment of their loans for significant lengths of time. Loan fees for a bank are generally around 0.50% to 2.0%, while hard money lenders may charge between 2% and as much as 5% or more as a front-end fee that a borrower must pay upfront. There is a major difference between hard money lenders in the amount of upfront fees, so the borrower needs to do extensive due diligence to find the best lender for their loan.

What Are The Risks Of A Hard Money Loan To A Borrower?

With the right hard money loan lender, the risks can be managed. With the wrong one, the risks are high – ranging from being taken in by a fraudulent lender and losing up-front fees without getting a loan to ending up in foreclosure without appropriate reasons. Conducting upfront research on a private capital lender is critical.

How Do I Find A Hard Money Lender?

The best way to find a good private capital lender is by referral from a trusted source such as a banker, attorney, or commercial realtor. Word-of-mouth referrals are generally the best way to find the right hard money lender.

However, the most common way to find a hard money lender is by searching online. For better results, look for a lender in your area by specifying your location—for example, search for ‘hard money lenders in Colorado’ instead of just ‘hard money lenders’ to find local options.

Many large national companies are offering loans, but they are much harder to utilize than companies in your own geographical area. Check out our blog “Borrower Beware – 6 Ways Not To Get Ripped Off By A Hard Money Lender” to learn more about how to vet a hard money lender.

What Hard Money Loan Amounts Are Available?

A hard money loan amount is generally determined by the investment property’s appraised value rather than the borrower’s financial history. Hard money lenders usually provide 50%–75% of the value of the property (Loan-to-Value or LTV ratio).

In contrast, traditional mortgage lenders—such as banks and credit unions—offer significantly larger loan amounts, often ranging from $100,000 to several million dollars, depending on the borrower’s creditworthiness, income, and debt-to-income ratio. Traditional mortgage loans can have LTVs as high as 80%–97%, especially for borrowers who qualify for FHA or VA loans.

At Montegra, we fund loans starting at $250,000 and going up to $7,000,000, providing financing for a variety of real estate investments. We lend up to 65% of the appraised value of income-producing properties, using fair market appraisals rather than “quick sale” values to ensure our borrowers receive the maximum funding possible.

Work with an Expert Colorado Hard Money Lender

If you’re looking for fast, flexible, and reliable financing for your next real estate investment, Montegra is the trusted partner you need. With over 50 years of experience in private lending and more than $750,000,000 in loans funded, we specialize in hard money loans tailored for real estate investors. Our streamlined approval process and asset-based lending approach ensure you get the funds you need—when you need them.

Unlike traditional banks, we focus on the value of your property, not just your credit history, allowing us to provide up to 65% of the appraised value with loan amounts ranging from $250,000 to $7 million. If speed and flexibility are key to your success, don’t let financing delays hold you back. Contact us today to discuss your lending needs or apply online and see how Montegra can help you secure your next investment opportunity!