Comparison
Hard money vs seller financing
Seller financing is the cheapest capital in real estate and almost nobody asks for it. It is also entirely dependent on one motivated person saying yes.
The short answer
Ask for seller financing first. It costs nothing to ask.
When a seller will carry paper, the terms are usually better than any lender will offer. The problem is that it is unavailable far more often than it is available.
At a glance
| Hard money | Seller financing | |
|---|---|---|
| Cost | 8.0% to 15.0% + 1.0 to 4.0 points | Entirely negotiable - often below market, sometimes 0% |
| Points and fees | 2-4 points plus flat fees | Usually none |
| Speed | About a week | As fast as both parties and a closing attorney |
| Underwriting | The property | Whatever the seller decides to care about |
| Down payment | 10%-20% | Negotiable, sometimes far less |
| Term | 6 to 24 months | Negotiable - often 3-5 years with a balloon |
| Rehab funds | Yes, drawn | No |
| Availability | Reliable | Rare, and depends entirely on the seller |
Why sellers say yes
Not generosity. The usual reasons are tax deferral on the gain, a better yield than they would get on the cash, a property that will not finance conventionally anyway, or simply that they have owned it free and clear for twenty years and want income rather than a lump sum.
The profile most likely to say yes: an older owner, free and clear, on a property with a condition problem, who is not in a hurry. That is also, often, exactly the property you want.
What to watch
- Due-on-sale. If the seller has a mortgage, transferring title can trigger it. "Subject-to" structures carry real risk and need a lawyer, not a podcast.
- Documentation. A handshake and a one-page note is not simpler, it is unresolved. Use a real note and a real security instrument - see the annotated note.
- The balloon. Most seller notes balloon in three to five years. That is an exit you still have to underwrite.
- No rehab money. Seller financing buys the property; it does not fund the work. Many investors pair it with a smaller hard money or private loan for the renovation.
- Title and liens. Get a title policy exactly as you would with an institutional lender.
The honest verdict
Questions people actually ask
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.