What Is a Hard Money Loan?
A hard money loan is a short-term, asset-based loan secured by real property. Unlike conventional bank loans that focus heavily on your credit score, income history, and debt-to-income ratio, hard money lenders primarily evaluate the value of the property being used as collateral.
This makes hard money loans particularly attractive for real estate investors who:
- Need to close quickly (often in 7–14 days)
- Have credit challenges that disqualify them from bank financing
- Are purchasing distressed properties that conventional lenders won't touch
- Need bridge financing between transactions
The 5 Key Factors Hard Money Lenders Evaluate
1. Loan-to-Value (LTV) Ratio
The single most important factor in hard money underwriting is the loan-to-value ratio — the loan amount divided by the property's current or after-repair value (ARV).
Most hard money lenders will lend up to:
- 65–75% of current value for bridge loans
- 70–80% of ARV for fix-and-flip loans
- Up to 90% of total project cost (LTC) for experienced investors
2. Exit Strategy
Hard money lenders want to know how you plan to repay the loan. Common exit strategies include:
- Selling the property after renovation (fix and flip)
- Refinancing into a conventional mortgage (BRRRR strategy)
- Selling to another investor (wholesale)
3. Property Condition and Type
Not all properties qualify for hard money loans. Most lenders prefer:
- Single-family residences (SFR)
- 1–4 unit residential properties
- Small commercial properties
4. Borrower Experience
While hard money lenders are more flexible than banks, experience matters. First-time investors may face:
- Lower LTV limits
- Higher interest rates
- Stricter draw schedules on construction loans
5. Credit Score (Less Critical, But Still Considered)
Most hard money lenders will accept credit scores as low as 580–620. However, a higher credit score can unlock:
- Lower interest rates
- Higher LTV ratios
- Faster approval processes
What Documents You'll Typically Need
| Document | Purpose |
|---|---|
| Purchase contract or property address | Establishes the deal |
| Scope of work / rehab budget | For fix-and-flip loans |
| Proof of funds for down payment | Shows you have skin in the game |
| Entity documents (LLC, etc.) | If borrowing as a business |
| Prior project photos (optional) | Demonstrates experience |
Common Mistakes That Get Applications Rejected
1. Overstating the ARV. Lenders use their own appraisers or AVMs. If your projected after-repair value is unrealistic, the loan will be declined or reduced.
2. Underestimating rehab costs. A $20,000 rehab budget on a property that clearly needs $60,000 in work is a red flag. Be conservative and realistic.
3. No clear exit strategy. "I'll figure it out" is not an exit strategy. Know exactly how you'll repay the loan before you apply.
4. Choosing the wrong property type. Some lenders won't touch mobile homes, rural properties, or heavily damaged structures. Confirm eligibility before applying.
How Crystal Capital Can Help
Crystal Capital specializes in asset-based private money lending for real estate investors nationwide. Our underwriting focuses on the deal, not your credit score. We offer:
- Fix & Flip loans from 9.99% with up to 90% LTC
- Bridge loans for quick acquisitions
- New construction financing with draw schedules
- 24-hour term sheets with no hard credit pull