Quick answer: Hard money loans for fix and flip are short-term, asset-based loans that typically fund 75% to 90% of the purchase and up to 100% of rehab, capped near 65% to 75% of after-repair value. Expect points of 1% to 3% plus double-digit interest. DispoKey buyers who price these costs into the offer before bidding avoid the most common flip loss: running out of loan term.
Speed is why flippers use hard money. A bank loan on a distressed house can take 45 days and may not close at all if the property fails the appraisal. An asset-based lender can often fund in one to two weeks because it lends against the deal, not your tax returns. That speed has a price, and the investors who make money with hard money are the ones who know that price before they write the offer.
How hard money works on a flip
A private or institutional lender funds part of the purchase and usually some or all of the rehab, secured by a first lien on the property. You make interest-only payments and repay the full balance, a balloon, when you sell or refinance. Because these are business-purpose loans on investment property, many consumer lending rules under Regulation Z do not apply, which makes reading the term sheet carefully even more important.
- Loan-to-cost (LTC): the share of purchase plus rehab the lender funds, often 80% to 90%.
- Loan-to-ARV: a ceiling on the total loan as a share of after-repair value, commonly 65% to 75%.
- Term: usually 6 to 18 months, with paid extensions.
- Draws: rehab funds are reimbursed in stages after a lender inspection.
The real costs, line by line
The interest rate gets the attention, but on a six-month flip the fees often cost as much as the interest. Ask every lender for a full fee list and compare them in the same table.
| Cost | Typical range (examples, vary by lender) | When you pay |
|---|---|---|
| Origination points | 1%-3% of the loan | At closing |
| Interest | Roughly 9%-14% annual, interest-only | Monthly |
| Underwriting / processing | $500-$2,000 | At closing |
| Appraisal or BPV | $400-$900 | Before closing |
| Draw inspection fees | $150-$300 per draw | Each draw |
| Extension fee | 0.5%-1% of the loan per extension | If you run past term |
| Exit or prepayment fee | 0%-1% | At payoff, if any |
Why draw schedules matter
Most lenders reimburse rehab after work is done, not before. If your contractor needs $15,000 to start demolition and framing, that money comes from you until the first draw inspection releases funds. Ask how many draws are allowed, how fast inspections are scheduled and how long funding takes after approval. A slow draw process stalls crews and stretches your timeline, which costs interest.
Worked example: pricing the loan into the offer (illustrative numbers)
Suppose an off-market house has an ARV of $300,000 and needs a $45,000 rehab. You plan a six-month hold. These numbers are labeled examples, not a lender quote.
- Lender terms: 90% of purchase, 100% of rehab, max 70% of ARV ($210,000 total), 2 points, 12% interest.
- If you pay $175,000, the lender funds $157,500 + $45,000 = $202,500, under the $210,000 cap. Your cash in: $17,500 down.
- Points: 2% of $202,500 = $4,050. Interest: about $12,150 over six months if fully drawn (less if rehab draws come later).
- Other loan costs: underwriting $1,200, appraisal $600, four draws at $200 = $800.
- Total financing cost: about $18,800, or 6.3% of ARV.
Add buying and selling closing costs, holding costs such as taxes, insurance and utilities, and selling commissions. If that total leaves less profit than your minimum, lower your offer before bidding, not after the inspection. Our deal calculators let you run these lines side by side, and our guide to analyzing fix and flip deals covers the full math.
How to choose a hard money lender
Pricing is only one factor. On a flip, reliability and speed protect your profit more than a quarter point.
- Ask for a written term sheet with every fee, not a verbal rate.
- Confirm the ARV method: who orders the valuation and whether you can challenge it.
- Test draw speed: ask past borrowers how long draws took.
- Read the extension and default clauses: default interest can be several points higher.
- Check proof-of-funds letters: many lenders issue them, and sellers and dispo teams ask for them.
Does experience change the terms?
Usually yes. Many lenders tier pricing and leverage by how many flips you have completed in the past few years. A first-time borrower may get lower leverage and higher points. Keep a simple track record with addresses, purchase and sale prices and timelines; it can lower your cost on the next loan.
Hard money vs other ways to fund a flip
Hard money is not the only choice. A home equity line of credit is cheaper if you have equity and the bank will lend on the property type. Private money from people you know can be flexible but needs clear, written terms. All-cash buying avoids loan costs entirely and strengthens your offer, though it ties up capital. Many experienced flippers mix sources: cash to buy and a lender for the rehab, or the reverse.
When DispoKey may not be your best option
Off-market deals through DispoKey move quickly and are sold as-is, without financing contingencies. If you need a contingency to line up a loan, or your lender needs three weeks to fund, a listed property with a standard contract may suit you better. Line up financing first, then apply for marketplace access; approval is reviewed by our team.
Key takeaways
- Hard money is priced in points, interest, fees and time; model all four.
- The loan-to-ARV cap, not the purchase percentage, often limits how much you can borrow.
- Draws reimburse work already done, so keep cash to start the rehab.
- Extension fees punish slow projects; build a realistic schedule with a buffer.
- Price financing into your offer before you bid.
Ready to see vetted off-market deals? Apply to join the DispoKey buyer network, browse markets we cover, or read how off-market properties reach investors.
