Guide
Extensions, running late, and default
Most projects run past the term. What happens next is written in the note, and it is worth reading before you need it.
The term on a hard money loan is a hard date, and renovation projects are late more often than they are early. Planning for the overrun is normal practice, not pessimism.
Extensions
Most lenders will extend for a fee of 0.5%-2.0% of the loan per extension period, commonly three or six months, sometimes with a rate increase. Two points to check in the note:
- Is it a right or a discretion? "Borrower may extend upon payment of the extension fee" is very different from "Lender may, in its sole discretion, grant an extension". The second one can be refused for reasons that have nothing to do with you.
- How many are available? One three-month extension on a twelve-month term gives you fifteen months of runway. That is your real deadline.
What default actually looks like
Default is usually triggered by non-payment, by failing to pay off at maturity, or by a covenant breach - letting insurance lapse, failing to pay taxes, unpermitted work, or transferring title.
- Default interest at a rate specified in the note, commonly 18-29%, typically accruing from the date of default and sometimes retroactively.
- Late fees, often 5% of the payment.
- Legal and servicing costs added to the balance.
- Foreclosure. In non-judicial states the process can run in a few months. Private lenders generally move faster than banks because they have less process and more motivation.
- Deficiency and the personal guarantee. If the sale does not cover the balance, the guarantee is how they collect the rest.
What to do when you know you will be late
- Tell the lender early. Sixty days before maturity is a conversation; the day after is a problem. Lenders extend for borrowers who communicate.
- Bring a plan with a date. A signed listing agreement, a refinance application in process, or an accepted offer changes the tone entirely.
- Ask what the fee is and get it in writing before agreeing to anything.
- Line up a backup takeout. A second lender who could refinance you is leverage as well as insurance.
- Do not skip a payment to conserve cash. Late payments can trigger default provisions that a maturity overrun on its own would not.
Questions people actually ask
What exactly is a hard money loan?
A short-term loan secured by real estate, made by a private lender rather than a bank, and underwritten mainly against the property rather than against you. The lender's core question is not can this borrower afford the payments but if this goes wrong, can I sell the collateral for more than I lent.
That single difference explains everything else about the product: it funds in days instead of weeks, it tolerates credit and income situations a bank will not, it is priced at 8.0% to 15.0% instead of mortgage rates, and it is written for 6 to 24 months rather than 30 years.
Why do people apply for hard money loans?
Three reasons, in order of how often they are the real one. Speed: a seller wants to close in ten days and a bank cannot. Condition: the property will not pass a conventional appraisal because it has no kitchen, so no conventional lender will touch it. Situation: the borrower's tax returns, credit, or entity structure do not fit an underwriting box.
Notice that none of those is the money is cheap. Hard money is expensive money that buys you access or speed. If you do not specifically need access or speed, you are paying a large premium for nothing.
Is a hard money loan a good idea?
It is a good idea when the cost of the money is smaller than the value of what the money lets you do, and a bad idea in every other case. That sounds obvious and it is routinely ignored, because the cost is quoted as a rate and the benefit is imagined as a profit.
Concretely: if the loan costs you $18,000 all-in over six months and it lets you capture a $60,000 spread you could not otherwise reach, it is a good idea. If it costs $18,000 to chase a $22,000 spread that assumes the rehab runs on schedule and the ARV holds, you have bought yourself a job with downside. Run it through the true-cost calculator before you decide, not after.
Is hard money lending a good idea?
From the lender's side this is a different question entirely - it is asking about investing capital in these loans rather than borrowing them. We do not cover the investor side of the trade, and note only that private lending funds are securities-adjacent, frequently illiquid, and not covered by deposit insurance. Talk to someone licensed before you put money in.
What are the benefits of a hard money loan?
Speed to close, measured in days rather than weeks. Willingness to lend against property a conventional lender will reject on condition. Underwriting that weighs the deal more heavily than your tax returns. Rehab funds available as a holdback, which no conventional purchase loan offers. And leverage on a purchase price that would otherwise need all cash.
Every one of those is a genuine benefit. All of them are paid for in the fee stack.
What are the risks of a hard money loan?
The honest list, roughly in order of how often it actually bites people:
The clock. Terms run 6 to 24 months. Rehabs run late. When the term ends and the property is not sold or refinanced, you pay an extension fee, or you default. Cost compounding on delay. Every extra month adds interest, carrying costs and possibly an extension fee at once. The exit not existing. A BRRRR that assumes a refinance at a certain value fails entirely if the appraisal comes in low. Recourse. Most hard money loans carry a personal guarantee, so the downside is not limited to losing the property. Speed of foreclosure. In non-judicial states a private lender can move far faster than a bank.
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.