What is a hard money loan?

A hard money loan is a short-term loan secured by a “hard” asset, usually real estate. Instead of focusing on a borrower’s credit or income, lenders look mainly at the asset’s value and potential. These loans are often used for investment properties, especially when timing matters or when a borrower can’t qualify for a traditional mortgage.

Hard money loans can help in certain situations, but they’re also more expensive and carry shorter repayment terms. Rocket Mortgage doesn’t offer hard money loans, but we can help you understand how they work so you can make informed financing decisions for real estate investments.

Hard money loan basics

Hard money loans operate differently from traditional mortgages, but it's helpful to understand their common features. They’re often used by investors who need fast access to financing.

Primary characteristics of a hard money loan include:

• Requires a hard asset as collateral
• Provided by private investors or private companies
• Faster approval process
• Less focus on credit score or income
• Shorter loan terms
• Helpful when traditional financing is not an option

Like other secured loans, hard money loans allow a lender to take ownership of the property if a borrower defaults.

Hard money lenders: What to know

Hard money lenders are usually private investors or companies that aren’t bound by the rules that apply to conforming loans. This gives them more freedom to set their own requirements for factors such as credit scores and debt-to-income ratios (DTI).

Hard money loan rates

Hard money loans are generally more expensive than conventional mortgages. In September 2025, the average rate for a 30-year fixed conventional mortgage was 6.26%. Hard money rates typically fall between 8% and 12%, but can be higher.

Because private lenders set their own terms, rates can vary based on property type, market conditions, and loan-to-value ratio. Many lenders finance only 70% to 80% of the property’s value, which means borrowers may need a larger down payment. Hard money loans also come with short repayment periods and higher interest costs, making them better suited for specific short-term projects rather than long-term financing.

Hard money loans vs. traditional loans

Hard money loans are considered alternative lending because approval is based mainly on the property used as collateral. Traditional loans rely on a borrower’s full financial profile, including income, credit history, and debt levels.

Hard money lenders offer faster approvals since they review fewer documents. Traditional lenders take longer, but the trade-off is lower rates and longer repayment terms.

Comparison of hard money loans and traditional loans:

What are hard money loans used for?

Hard money loans are mostly used by real estate investors or businesses that need quick access to funds. They’re best for short-term projects where the property’s potential is more important than long-term financing.

Flipping a house

Real estate investors who specialize in house flipping often use hard money loans because these fixer-upper projects move quickly. House flipping typically requires fast access to capital, and investors aim to buy, renovate, and sell within a short time frame. These short-term loans align well with the pace of house-flipping projects.

Purchasing investment property

Some borrowers use hard money loans to purchase investment or rental properties when they can’t qualify for traditional financing or need more flexibility than a conventional lender allows. These loans for investors can help buyers act quickly on properties that need renovation, giving them time to make repairs and eventually refinance into a longer-term option that replaces the short, hard money loan terms.

Purchasing commercial property

Some business owners use hard money loans to buy commercial real estate, especially if they don’t qualify for conventional financing. Entrepreneurs may turn to this type of loan if a property needs extensive renovation or doesn’t meet the strict requirements of traditional commercial lenders for other reasons.

Hard money loans can also help when more financing is needed than traditional lenders provide, letting investors move forward on a property and arrange long-term financing as the project progresses.

The pros and cons of hard money loans

Hard money loans can help with time-sensitive deals, but they come with trade-offs. Understanding the benefits and drawbacks can help you decide whether this type of financing fits your goals.

Hard money loan pros

• Faster approval process: Money can sometimes be available in just a few days, which can make a big difference when you’re trying to move quickly on a property.
• Approval based on the property, not your full credit history: Investors with past credit issues may still have a chance to qualify.
• Flexible terms: Private lenders can adjust the loan structure to match the project's pace.
• Simpler underwriting: There’s usually less paperwork and fewer financial checks compared to a traditional mortgage.
• Useful for fix-and-flip projects: These loans can help investors buy and renovate properties on a tight timeline.

Hard money loan cons

• High interest rates: You’ll usually pay much more than you would with a traditional mortgage.
• Higher upfront costs: Many lenders require a large down payment or fees due to lower loan-to-value limits.
• Short repayment timelines: You may have only 6 – 24 months to repay the loan, which can put pressure on your project timeline.
• More financial risk: If the project takes longer or costs more than expected, it may be harder to repay the loan on time.
• Potential prepayment penalties: Some lenders charge a fee if you try to pay the loan off early.

Alternatives to hard money loans

Hard money loans can work for certain investment situations, but they’re not the only way to finance a property. Rocket Mortgage doesn’t offer hard money loans, but does offer several other loan options that may give you the flexibility, stability, or long-term structure you need to move forward with an investment property. These options can also help you use the equity in one home to support the purchase of another.

Alternatives include:

Home equity loans: A home equity loan lets you borrow against the equity in your current home at a fixed interest rate. Some investors use this option to access cash for a down payment on another property.

Cash-out refinances: A cash-out refinance replaces your existing mortgage with a new one and lets you withdraw part of your home’s equity as cash. Investors often use this cash to buy or renovate an additional property while keeping their long-term financing on stable terms.

Conventional loans: You can use a conventional loan to buy an investment property if you meet the credit, income, and asset guidelines. These loans often have lower interest rates than hard money financing, making monthly payments more manageable over the long term.

FHA loans: FHA loans can be an option if you plan to live in one of the units as your primary residence. Investors sometimes use this approach to buy a multi-unit property, live in one unit, and rent out the others while building equity for future investments.

FAQ about hard money loans

What is a hard money loan example?

Imagine you find an investment property that needs renovation and is priced well below market value. The seller wants to close quickly, and there is strong competition from other buyers. If you can't wait for a traditional mortgage approval, a hard money loan could provide fast funding.

What are the risks of a hard money loan?

Hard money loans have higher interest rates, shorter repayment periods, and possible prepayment penalties. Because the loan is secured by the property, failing to repay could put your investment at risk. These loans work best when you have a clear exit strategy.

What are the typical terms for hard money loans?

Most hard money loans include interest rates between 9% and 18%, repayment periods of about 6 to 24 months, and loan-to-value ratios around 70% to 80%. These terms offer fast access to cash but require a realistic plan to repay the loan promptly.

The bottom line: Hard money loans can be risky

Hard money loans can help investors move quickly, but the higher costs and short repayment periods make them difficult to use beyond the immediate project. They’re usually a better fit when the plan is clear and the turnaround is fast. Looking closely at how these loans work can help you decide if they’re right for your situation or if another option would work better.

If you’re ready to explore mortgage options for an investment property, you can begin a Rocket Mortgage application here.

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