What a hard money loan actually costs

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.

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.

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.

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.

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.

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.

Most quotes land in 10% to 12%, with fix-and-flip paper generally 9.0% to 14.0% and first-time borrowers or unusual collateral running up toward 18.0%. Ranges reflect pricing lenders and industry write-ups publicly advertised as of August 2026. They are advertised ranges, not transaction data - unlike conventional mortgages, private lending has no public loan-level dataset, so nobody can honestly claim to know the true national average. Treat them as a sanity check on a quote, not a benchmark you are entitled to.

But the interest rate is the least useful number on the term sheet. A loan at 10% with 3 points, a $1,495 doc fee, six months of guaranteed interest and interest charged on the undrawn rehab holdback is substantially more expensive than a loan at 12% without those terms. Compare all-in cost, never rates.

See above - 10% to 12% is the common band. The more useful question is what the loan costs in total dollars over the months you will actually hold it, which is what the true-cost calculator computes.

One point is one percent of the loan amount, charged up front. Two points on a $300,000 loan is $6,000, usually deducted from your proceeds at closing rather than billed.

The detail that costs people money: ask whether points are charged on the total loan facility or on the initial funding. If you are borrowing $240,000 for the purchase and $60,000 for rehab, two points on the $300,000 facility is $6,000 - but you only receive $240,000 at closing, so you paid 2.5% on the money you actually got. That gap is standard and rarely volunteered.

$1,000. Points are simply a percentage of the loan amount, so two points is 2% - and on a small loan the flat fees matter far more than the points. A $50,000 loan with 2 points ($1,000) plus a $1,495 doc fee and a $750 underwriting fee carries $3,245 of closing cost, which is 6.5% of the loan before a day of interest. Flat fees are why small hard money loans are disproportionately expensive.

There are usually nine, and a term sheet typically leads with two. The full stack is origination points, underwriting or processing, document preparation, valuation, per-draw inspection, wire and servicing, extension, exit or back-end, and minimum or guaranteed interest. The fee stack, line by line walks through each one with the range you should expect and the question to ask about it.

Not the way most calculators do it. The typical online hard money calculator multiplies loan amount by rate by months and adds points. That undercounts real cost, often badly, because it ignores five things: interest charged on the undrawn rehab holdback, minimum-interest clauses, per-draw fees, extension fees on the months you run over, and the flat fees that dominate on smaller loans.

The honest calculation is: (all interest actually charged under the lender's accrual method) + (points on the basis the lender uses) + (every flat fee) + (draw fees x draws) + (exit fee) + (extension fees if you run long), then expressed as an annualised rate on the money you actually had use of. Ours does that: true-cost calculator.