Comparison
Hard money vs a HELOC
A line of credit on property you already own is far cheaper money. It is also slower, recourse to an asset you care about, and capped by your existing equity.
The short answer
Use the HELOC if you have the equity and three spare weeks.
It is dramatically cheaper. Hard money wins only when you need speed, when the collateral itself is the problem, or when you have run out of home equity to draw on.
At a glance
| Hard money | A heloc | |
|---|---|---|
| Cost | 8.0% to 15.0% + 1.0 to 4.0 points | Prime-linked and variable, typically far below hard money, often with minimal fees |
| Time to draw | About a week to close the first time | 2-6 weeks to open; instant after |
| Secured by | The investment property you are buying | Property you already own |
| Underwritten on | The subject property | Your income, credit and existing equity |
| Limit | Sized to the deal | Capped by the equity you already have |
| Funds rehab in draws | Yes, that is the design | No - you manage the money yourself |
| If the deal fails | You lose the project and face the guarantee | The lender's claim is against the property securing the line |
The real trade is not price, it is which asset is at risk
A HELOC is cheaper by a wide margin. What you are paying for with hard money is that the loan attaches to the property you are buying rather than to one you already own.
When the HELOC genuinely wins
- You have real equity sitting idle and a deal that is not time-critical.
- The purchase is small enough that hard money's flat fees would dominate - under about $150,000, where a $1,495 doc fee plus a $750 underwriting fee is 1.5% before points.
- You are buying something habitable that needs cosmetic work you can fund yourself.
- You want to be a cash buyer. A drawn HELOC lets you make a genuinely non-financed offer, which is worth real money in a competitive market.
When hard money wins anyway
- Speed. A seller wants ten days and your HELOC takes four weeks to open.
- Scale. The deal is bigger than your available equity.
- Rehab funding. A large renovation budget released in draws, which a HELOC does not do.
- Repeat volume. You cannot run four projects at once off one line of credit.
- Protecting the residence. Sometimes worth paying more for, deliberately.
The combination most experienced investors actually use
Questions people actually ask
How much do you put down on a hard money loan?
Against as-is value, lenders typically go to 60% to 75%, so 25%-40% comes from you. On a purchase with rehab the more common framing is loan-to-cost: 80%-90% of the purchase price plus 100% of the rehab budget, held back and released in draws.
Do not confuse the down payment with cash to close. Points, flat fees, title, insurance and the first draw you fund yourself all sit on top. Ten to fifteen percent of purchase price is a realistic planning figure for total cash needed on a leveraged flip.
How much down do you need for a hard money loan?
See above - 10% to 20% of purchase is the usual range, before fees and reserves.
Does a hard money lender cover 100%?
Almost never on purchase price, and the offers advertising it usually mean something narrower: 100% of the rehab budget (common and real), or 100% of purchase where the purchase is far below as-is value and the loan is still inside the lender's ARV cap (rare and deal-specific), or 100% with cross-collateralisation against another property you own (real, and it puts a second asset at risk).
Treat a headline promising 100% financing with no cash as the marketing hook it usually is, and read what the offer actually caps at. See the truth about 100% financing.
How long do you have to pay off a hard money loan?
Terms run 6 to 24 months, with 12 months the most common. That is a hard deadline with a fee attached, not a guideline - which is why the exit matters more than the rate.
How do you pay back a hard money loan?
Three ways, and you should know which one before you sign. Sell the property and pay off from proceeds. Refinance into longer-term debt, usually a DSCR rental loan. Or pay it off from other capital. Most hard money loans are interest-only during the term with the principal due as a balloon at the end, so there is no amortisation quietly reducing what you owe.
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.