Hard money vs a bank loan: when speed is worth the price

Hard money is a loan from a private lender — a fund, a company, sometimes an individual — secured by the property and underwritten mostly on the property and the deal, not on your income. A bank loan is the opposite: cheaper money, far more scrutiny of you, and a much longer wait.

Neither is better. They answer different questions.

Side by side

Typical market ranges, not an offer. Pricing depends on the lender, the borrower and the deal.

Why anybody pays 12%

Because a missed closing can cost more than the interest.

You are under contract with fourteen days left. A bank needs forty-five and may still decline on day forty. A hard-money lender can fund in seven and decides on the deal it can see. If losing the property means losing a $60,000 profit, then $9,000 of interest is not expensive — it is the cost of the opportunity existing at all.

The moment it stops being worth it is when the deal is not time-sensitive. Paying 12% for eight months on something a bank would have done at 7% is simply donating the difference.

What happens after you apply

Either way, a person with a checklist works your file in a fixed order.

The difference is how many boxes there are and how much of the list is about you. Hard money is short and property-shaped. A bank's is long and income-shaped.

What a hard-money lender actually wants

Not forty pages of tax returns. One page with:

• the address, the purchase price and the renovation budget
• the after-repair value, with the sold comparables behind it
• what you have done before, with addresses
• how much cash you are putting in
• the exit — sell by when, or refinance into what

Give them that and you often have an answer the same day.

The question that decides the loan

What is the exit, and is it real?

A short-term loan with no exit is a default with a twelve-month fuse. If the exit is a refinance, price that loan now: will the property qualify then, at that rate, at that occupancy? If it is a sale, at what price, based on which comparables?

The honest summary

Use hard money when the clock or the condition of the property rules a bank out, and the deal can carry the cost. Use a bank when you have time and the property already qualifies. A good broker will tell you which one you are in — and will say so when the answer is "wait and go to a bank".

Tell us about the deal and we will tell you which it is.