Comparison
Hard money vs a bank construction loan
Banks lend on ground-up construction at roughly two points less. They also want a builder, a balance sheet and sixty days - which is why private construction money exists.
The short answer
The bank is cheaper by about 200 basis points. It is also far harder to qualify for.
Private construction money wins on speed, on unentitled or unusual projects, and for builders without a bank relationship. On a straightforward build with a strong sponsor, the bank should win.
At a glance
| Hard money | A bank construction loan | |
|---|---|---|
| Rate | 9.0%-15.0% | Around 8.0% for single-family spec construction |
| Points | 2.0-4.0 | 0.5-1 typically |
| Time to close | 1-3 weeks | 45-90 days |
| Underwritten on | The project and the collateral | You, your balance sheet and your builder |
| Entitlements | Sometimes lends pre-permit at lower leverage | Permits required |
| Leverage | 65-75% of completed value | Often lower, and with recourse |
| Draw process | Faster, less formal | Slower, more documentation |
| Completion guarantee | Usually required | Usually required |
The premium, measured
There is a second, less obvious number worth knowing: private lenders originated more than $25bn of ground-up construction in 2025, against a banking sector holding roughly $91bn of single-family construction loans in total. Private construction lending is not a fringe product any more.
When the bank will not do it
- You are not an established builder with a track record and a balance sheet.
- The land is not yet entitled or permitted.
- The project is unusual - infill, mixed-use, non-conforming, or in a thin market.
- You need to close on the land quickly to secure it.
- You already have several projects open and the bank's exposure limit is reached.
The one term that matters more here than anywhere
The usual path
Private money for land and the early phases, then a bank construction facility or a permanent loan once permits are issued and the sponsor has a completed project to point at. The premium is the price of getting started before a bank will have you.
Questions people actually ask
What are the qualifications for a hard money loan?
In the order the lender actually cares about: the deal (purchase price against as-is value and after-repair value), your cash into the transaction, your exit, your track record, and last and least, your credit.
Practically, most lenders want to see 80%-90% of purchase price from them and the rest from you, a rehab budget that has been scoped rather than guessed, a credit score somewhere north of 620-660 as a screen rather than a pricing input, an entity to take title, and reserves beyond your down payment. First-timers get less leverage and worse pricing, not a refusal.
How do I qualify for a hard money loan?
Bring a deal that works on the lender's numbers, not yours. That means a defensible ARV, a rehab scope with line items rather than a round number, cash to close that you can document, and a specific exit with a date. Everything else - credit, income, experience - moves your pricing but rarely decides the answer on its own.
Are hard money loans hard to get?
Comparatively, no - which is the point of the product. Approval turns on the collateral, so a borrower who would be declined instantly by a bank can be approved in days. What is hard is getting good terms: the gap between what an experienced investor with ten flips is quoted and what a first-timer is quoted is large, and it shows up in leverage and points rather than in a yes or no.
How difficult is it to get a hard money loan?
Days rather than weeks, and the paperwork is a fraction of a conventional file. The friction is in the valuation and the draw process, not the approval.
How hard is it to get a hard money loan?
See above. The realistic constraint for most first-time borrowers is not approval, it is cash to close - see how much cash you actually need.
What are the requirements for getting a hard money loan?
A property under contract or owned, an as-is value and an ARV the lender can support, a scoped rehab budget, documented cash to close, an entity in most cases, hazard insurance naming the lender, title, and a stated exit. Income documentation is usually light or absent; that is the trade you are making.
Are DSCR loans considered hard money loans?
No, though they are often sold by the same lenders and confused constantly. A DSCR loan is long-term rental financing - typically 30 years, amortising, qualified on the property's cash flow instead of your tax returns. Hard money is short-term, interest-only, asset-based bridge capital. They are complements, not substitutes: hard money buys and renovates the property, the DSCR loan takes it out.
What's the downside of a DSCR loan?
Rates above conventional owner-occupied pricing, prepayment penalties that are common and sometimes steep, a hard floor on the debt-service ratio that a vacancy can breach, and reliance on a market-rent opinion that may not match what you actually collect. It is still usually far cheaper than staying in hard money.
How risky is hard money lending?
For the borrower, the risk concentrates in the term ending before the exit is ready, and in the personal guarantee that usually sits behind the loan. For the lender, the risk is a collateral value that turns out to be wrong. The product is not inherently dangerous; a short term against an uncertain exit is.