Hard money loan requirements center on the property, not on you. A lender will approve the deal if the real estate carries enough value to secure the loan at a conservative loan-to-value ratio, you bring 20% to 30% of the purchase price in equity, you have cash reserves to cover monthly interest, your credit report is free of recent bankruptcies and open liens, you carry the right insurance, and you present a credible plan to repay before the loan matures. Income documentation is light. Closings routinely happen in one to three weeks. The trade-off is cost and personal exposure that catch first-time borrowers by surprise.
The Property and Your Equity
The property is the loan. Lenders size what they’ll lend against the collateral’s value and express that sizing as a loan-to-value (LTV) ratio. For a straight acquisition, most hard money lenders cap LTV between 65% and 75% of current appraised value. Those ceilings track federal supervisory guidelines, which set LTV limits of 65% for raw land, 75% for land development, and 80% to 85% for improved commercial and residential property.1Federal Reserve. Real Estate Lending – Interagency Guidelines on Policies
Fix-and-flip deals get sized against after-repair value (ARV), the projected market value once the renovation is finished. ARV-based lending typically caps at 70% to 80% for flips, 65% to 75% for rentals, and 60% to 70% for ground-up construction. The lower the certainty of the projected value, the lower the LTV. A 75% ARV approval means the lender has built in a 25% cushion to recover principal through a foreclosure sale if the project stalls.
Value gets verified by a professional appraisal or a broker price opinion. An investment-property appraisal typically runs $300 to $600, more in complex or rural markets. Some lenders accept a BPO on smaller loans, which is faster and cheaper but carries less weight if the deal unravels.
The down payment is the mirror image of LTV. Expect to bring 10% to 30% of the purchase price to closing, with most deals landing in the 20% to 25% range. On a $400,000 acquisition at 75% LTV, you cover the remaining $100,000 from your own funds or through a documented secondary source like a joint venture partner. That stake is your skin in the game, and the lender treats it as a predictor of how hard you’ll work to protect the project.
Eligible Property Types
Hard money covers more real estate than many borrowers assume. Single-family houses and small multifamily buildings of two to four units are the most common collateral, but many lenders also fund larger apartment buildings, retail space, offices, mixed-use properties, and warehouses. Raw land is the hardest category to finance because it produces no income and carries the highest risk, which is why supervised LTV sits at just 65% for undeveloped parcels.1Federal Reserve. Real Estate Lending – Interagency Guidelines on Policies
What most lenders won’t touch: owner-occupied primary residences, properties with known environmental contamination, and anything with unresolved title disputes. If you’re buying something unusual, confirm the lender funds that property type before paying for an appraisal.
Cash Reserves and Liquidity
The down payment isn’t the end of what the lender wants to see in your accounts. Reserves covering six to twelve months of interest-only payments show you can carry the loan if the renovation runs long or the sale takes longer than expected. Lenders verify liquidity through two to three months of recent bank statements or brokerage summaries. Consistent balances carry more weight than a large deposit that landed last week, because fresh money raises sourcing questions.
If the loan includes a renovation budget, you also need working capital to cover contractor costs between draw disbursements. Renovation funds are released in stages after inspections, so the gap between paying your crew and receiving the next draw sits on your balance sheet, not the lender’s.
Credit Score and Financial Background
Hard money lenders pull credit, but the bar is much lower than a bank’s. Minimum scores vary: some lenders approve at 550, others draw the line at 620. What matters more than the number is what the report reveals about risk to the collateral. Underwriters focus on recent bankruptcies, active tax liens, and unpaid judgments, because any of those can attach to the property or complicate a foreclosure. A borrower with a 580 score and a clean recent history will often get better terms than someone with a 700 score and an open IRS lien.
Income verification is minimal. Most hard money lenders don’t ask for tax returns, W-2s, or debt-to-income calculations. The loan is underwritten against the property and the exit, not the paycheck. Lenders do want to know whether you’re overleveraged across other active projects. If you have five other hard money loans outstanding, expect questions about how you’re managing all of them.
Experience and the Borrowing Entity
Your track record moves pricing. Lenders tier borrowers by experience, and the spread between a first-timer and a seasoned investor is real. Someone with no completed projects might see rates of 11% to 13% with higher origination fees. A borrower with five or more successful flips in the past 36 months can negotiate rates in the 9% to 10% range with fewer points. Experienced borrowers default less, and lenders price that history into every term sheet.
First-timers aren’t shut out, but they face tighter terms. Some lenders want you to partner with an experienced investor on your first deal. Others fund the first loan at higher cost and improve terms once you’ve demonstrated execution.
Most hard money loans are made to a business entity, not an individual. Lenders expect you to hold the property in a limited liability company or corporation set up for the project. The application requires articles of organization or incorporation, an operating agreement, and an employer identification number. This structure keeps the loan classified as commercial credit, which affects both regulatory treatment and the foreclosure process. It’s rarely optional.
Insurance From Day One
Insurance is a funding condition. At minimum, every hard money loan requires hazard insurance covering fire, theft, vandalism, and storm damage, with the lender named as loss payee so insurance proceeds flow to the lender first if the property is damaged.
Renovation projects add builder’s risk insurance for materials, tools, and the structure during construction. If workers will be on-site, many lenders also require general liability coverage, and some require workers’ compensation when the borrower is acting as general contractor. Letting a required policy lapse during the loan term is a default event that can trigger penalties or acceleration.
A Credible Exit Strategy
Every hard money loan has an expiration date. Terms run from six to twenty-four months, and the lender treats the exit plan as seriously as the collateral. A vague intent to “figure it out later” is a fast path to rejection.
The two standard exits are selling the property or refinancing into long-term financing. A sale-based exit needs to line up with current comparable sales and a realistic renovation timeline. If your rehab budget calls for six months of work on a twelve-month loan, the lender will ask whether the remaining runway is enough to list, market, and close.
If the plan is to hold the property as a rental and refinance into a conventional mortgage, pay attention to seasoning rules. Fannie Mae requires borrowers to have been on title for at least six months before a cash-out refinance, and any existing first mortgage being paid off must be at least twelve months old at the time of the new loan.2Fannie Mae. Cash-Out Refinance Transactions Trying to refinance at month five of a twelve-month hard money loan runs straight into that wall. Build the seasoning window into your timeline before committing.
Missing the maturity date gets expensive quickly. Default interest rates can jump several percentage points above the contract rate. Some lenders offer extensions at a cost of 0.25% to 1% of the loan balance per month, but extensions aren’t guaranteed. If the lender accelerates the loan, the full balance comes due at once, and foreclosure can begin. In states with non-judicial foreclosure, that process moves fast.
Documents You Will Need to Provide
Hard money applications require less paperwork than conventional loans, but what the lender does ask for carries real weight. Missing or inaccurate documents cause most avoidable delays.
- Signed purchase contract showing the price, closing date, and any contingencies.
- Scope of work with a renovation budget broken down by task, materials, labor, and timeline. The lender uses this to structure the draw schedule.
- Entity documents: articles of organization or incorporation, operating agreement, and EIN for the LLC or corporation taking title.
- Two to three months of bank or brokerage statements showing reserves for the down payment, closing costs, and carrying costs.
- Interior and exterior property photos that the underwriter uses alongside the appraisal to assess renovation scope.
- Preliminary title report confirming the property is free of undisclosed liens, easements, and other encumbrances.
- Insurance binders showing hazard coverage and any required builder’s risk policies are bound or ready to bind at closing.
Accuracy in the scope of work matters more than most borrowers realize. If your budget says $40,000 for a kitchen renovation and the lender’s inspector pegs the work at $65,000, the underwriter will reduce the loan, require additional reserves, or decline the deal. Build the budget from actual contractor bids, not rough estimates.
What the Loan Will Cost
Hard money is expensive capital, and the full cost often surprises borrowers who focus only on the interest rate.
Interest Rates
First-lien hard money rates fall in the 9.5% to 12% range. Second-position loans run 12% to 14%. Payments are interest-only, so you’re not paying down principal during the term. On a $300,000 loan at 11%, monthly interest runs about $2,750. Rates vary with LTV, borrower experience, property type, and loan size.
Points and Fees
Origination points are the lender’s upfront compensation. One point equals 1% of the loan amount, and most lenders charge two to four points, with three the industry midpoint. On a $300,000 loan, three points costs $9,000 at closing. Loans under $50,000 sometimes carry higher point charges because fixed costs don’t scale down.
On top of points, expect flat fees for underwriting, document preparation, and processing, each running from a few hundred to a couple thousand dollars. Title search, escrow, and recording fees add more at closing. The full closing cost package frequently lands at 5% to 8% of the loan amount once points, flat fees, appraisal, title insurance, and recording charges are added together.
Prepayment
Paying off early doesn’t always save money. Many hard money loans include a guaranteed interest clause requiring a minimum number of months of interest regardless of when you repay. A three-month guarantee on a $300,000 loan at 11% means roughly $8,250 in interest even if you sell in month one. Longer-term hard money products, which are less common, sometimes use sliding-scale prepayment penalties that decline over the first several years. Ask about prepayment terms before signing, because a fast flip that triggers a guaranteed interest penalty can eat into profit.
Personal Guarantees and Recourse
This is where many borrowers misunderstand their exposure. The LLC does not shield you the way most people think. The vast majority of hard money loans are full recourse, which means the lender can pursue your personal assets if the sale of the property doesn’t cover the balance. The mechanism is a personal guarantee signed by the borrower or the LLC’s managing members at closing.
With a recourse loan, the lender can foreclose on the property and then pursue a deficiency judgment for any remaining balance. That judgment can reach bank accounts, other real estate holdings, and other personal assets depending on your state’s laws.3IRS. Cancellation of Debt – Basics Non-recourse hard money loans exist but are rare and come with higher rates, lower LTVs, and larger down payments. Most non-recourse agreements also include “bad boy” carve-outs that convert the loan back to full recourse if you commit fraud, misrepresent material facts, fail to maintain insurance, or allow environmental contamination.
Before signing a personal guarantee, understand that you’re staking more than the property on the project’s success. If the deal goes badly, the lender has a legal path to assets you never intended to put at risk.
Closing Speed and How Draws Work
Speed is the main advantage over conventional financing. Most lenders move from application to funded loan in one to three weeks, with straightforward deals closing in as few as seven to ten days. Expect one to three days for initial underwriting review, three to seven days for appraisal or BPO and inspection, and two to five days for document preparation and closing. At the table you sign a promissory note and a deed of trust or mortgage, title insurance is issued to protect the lender’s lien, and funds move to the escrow agent or closing attorney.
Renovation funds aren’t handed over in a lump sum. The lender releases money in stages called draws, tied to completed milestones in your scope of work. A typical schedule allocates funds across four or five phases: site prep and demolition, structural work, mechanical systems, interior finishes, and a final draw after punch-list completion. Before each release, the lender sends an inspector to confirm the work matches the approved scope. You submit a draw request, the inspector verifies, and funds are released, usually within a few business days. Some lenders hold back 5% to 10% of each draw as retainage, releasing it only after full completion. Budget for two to four weeks of float between draw requests.
Why Consumer Protections Don’t Apply
Hard money loans for investment property sit in a different regulatory universe than conventional home mortgages. Federal consumer lending rules, including Truth in Lending Act disclosures and the Dodd-Frank ability-to-repay requirement, generally don’t apply to business-purpose loans. Regulation Z explicitly exempts credit extended primarily for business, commercial, or agricultural purposes.4eCFR. 12 CFR 1026.3 – Exempt Transactions The CFPB’s official commentary goes further, treating credit for non-owner-occupied rental property as automatically business-purpose regardless of unit count.5Consumer Financial Protection Bureau. Comment for 1026.3 – Exempt Transactionsp>
In practice, your lender is not required to provide the standardized loan estimate and closing disclosure forms you’d get from a bank. There’s no three-day right of rescission. The ability-to-repay rule that keeps conventional lenders from making loans you clearly can’t afford doesn’t apply to business-purpose hard money.6Federal Register. Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act – Regulation Z That exemption is what makes hard money fast and flexible. It also means you’re responsible for understanding every term in the loan documents without the consumer-protection guardrails conventional borrowers take for granted. If you plan to occupy the property for more than 14 days per year, the business-purpose exemption may not apply, and most hard money lenders refuse to fund owner-occupied properties for that reason.5Consumer Financial Protection Bureau. Comment for 1026.3 – Exempt Transactions