A conventional lender wants a stabilized property, a long timeline, and a borrower with clean income documentation. A flip is none of those things — it's a distressed property you need to close on in days, not months, and finish before the loan even makes sense. That gap is what hard money exists to fill. It's fast, it's flexible about your income, and it's priced like it.
Why It Matters
Most flips die waiting on financing, not on the numbers. A great off-market deal with a 10-day close requirement doesn't survive a 45-day conventional underwriting process, and most rehab-stage properties don't qualify for a bank loan at all — no working kitchen or missing flooring can be enough to kill a conventional appraisal outright.
Hard money lenders solve for speed and asset condition instead. They underwrite the deal, not your W-2, and they can close in a week or two because they're lending against what the property will be worth after repairs, not what it's worth today. That access to capital is valuable — but only if you know exactly what it costs and you've built that cost into your offer before you ever sign a purchase agreement.
How Hard Money Underwriting Works
Loans are sized off ARV, not purchase price. Most hard money lenders will lend 65-75% of after repair value (ARV), often structured as an initial draw at closing plus a rehab holdback released as work is completed and inspected. This is the single most important number in the deal — it determines your maximum loan amount and, by extension, how much cash you need to bring to closing.
Pricing runs well above conventional financing. Expect interest rates roughly in the 9-15% range, plus origination points of 1-4% of the loan amount charged upfront. A $200,000 loan at 3 points is $6,000 out of pocket before a single interest payment is due — a cost that's easy to underestimate if you're only thinking about the monthly rate.
Terms are short by design. Six to eighteen months is typical, because the lender expects you to sell or refinance out, not hold. Some loans carry interest-only payments during the term, which helps monthly cash flow during the rehab but doesn't reduce what you owe at payoff.
Underwriting favors the deal and your track record over your income. Lenders still care about credit and experience — a first-time flipper and a ten-deal veteran won't get identical terms — but the property's numbers and your exit plan carry far more weight than a debt-to-income ratio ever would.
Running the Numbers
Hard money cost isn't just the interest rate. Add it up as a full line item before you make an offer:
Total financing cost = origination points (loan amount × point %) + monthly interest (loan balance × rate ÷ 12 × months held) + any extension fees + payoff/exit fees.
A $150,000 loan at 11% with 2 points, held for 6 months, costs roughly $3,000 in points plus about $8,250 in interest — call it $11,250 before a single dollar of rehab is spent. That number has to come out of your flip profit alongside purchase price, rehab, holding costs, and selling costs. If the deal doesn't clear a solid margin after all of that, the speed hard money buys you isn't worth what it costs.
Common Mistakes
Underwriting the deal at the interest rate alone. Points, draw-inspection fees, and extension fees can add up to more than the interest itself on a short hold. Price the whole loan, not just the headline rate.
Assuming the rehab holdback releases on your timeline. Draws typically require an inspection before funds release, and inspections take time to schedule. Build that lag into your rehab schedule, not just your loan schedule.
Missing the exit deadline. Going past the loan term usually triggers extension fees or a rate step-up. If your rehab or sale timeline slips — and on a flip, it usually does to some degree — know the extension cost before it happens, not after.
Borrowing the max LTV without a cash cushion. Financing the ceiling of what a lender will offer leaves no room for a rehab overrun or a slower-than-expected sale. Leave yourself a reserve, even if it means borrowing slightly less than you qualify for.
Not comparing multiple lenders. Points and rates vary meaningfully between hard money lenders on the same deal. A quick round of quotes on a six-figure loan can be worth thousands.
How ProfitTrackr Helps
Hard money financing only pencils out when every cost is accounted for, and those costs land in different places — points at closing, interest accruing monthly, an extension fee if the timeline slips. ProfitTrackr lets you log each of these against the property as they happen, so your flip profit and flip ROI numbers stay accurate through the entire hold instead of being a rough estimate you built once at the start.
That matters most at exit. When it's time to decide whether to sell now or hold a few more weeks for a better price, you're deciding with real financing costs on the books, not a guess about what the loan has cost you so far.
Key Takeaways
- Hard money loans are underwritten against ARV (typically 65-75%), not your income, which is why they can close in days instead of months
- Total financing cost includes origination points and fees on top of the interest rate — calculate all of it, not just the monthly rate
- Terms usually run 6-18 months; missing the deadline typically means extension fees or a rate increase
- Rehab draws release after inspection, which can lag your construction schedule — plan for it
- Shop multiple lenders on larger loans; points and rates vary enough to matter to your bottom line
Related articles: How to Calculate House Flipping Profit (Before You Ever Make an Offer) | Holding Costs: The Expense Investors Forget Until It's Eating Their Profit | ARV Explained: How to Calculate After Repair Value (And Why Most Investors Get It Wrong)