What Is a Hard Money Loan & How Do They Work?

Real estate investors looking to purchase an investment property realize that they will require some form of outside financing to receive the necessary funds to complete the purchase of their property, not every investor is able to pay the full amount in cash for their investments so they have to find creative ways to obtain financing for their deals.   One of the ways that real estate investors acquire the necessary financing for the purchase of an investment property is through a hard money loan.  Hard money loans are defined as asset based financing through which a borrower receives funds secured by the value of a parcel of real estate.

Hard money loans differ from traditional bank financing because they offer greater leverage to the borrower and they are able to close and fund deals faster than a traditional bank loan.  Investors can pay as little as 10% out of pocket for a down payment for the purchase and rehab of an investment property and can close and receive the loan funds in as few as 7-10 business days.  Real estate investing is a very competitive industry with multiple investors sometimes bidding against each other for the same property, so the ability to have the funds quickly puts the real estate investor at an advantage over their competition.  Leverage is another big advantage that real estate investors have by using a hard money loan.  The ability to put down a smaller portion of their own money allows for the real estate investor to buy more properties and do more deals and offers the opportunity to earn higher profits as well as a greater return on investment.

Hard money loan terms typically last up to one year (with Lima One Capital our short-term loans go up to 13 months) and monthly interest payments are made on the loan until it is paid off by the borrower upon the sale of the property.  Hard money loans are used to lend on non-owner occupied properties and most hard money lenders will lend on the ARV, or After Repair Value, of the home.  The ARV is an important metric and is one of the determining factors when a lender looks at the quality of the property and whether or not the property will be too much of a risk for them to make a loan on.

How to get a Hard Money Loan

If an investor decides to pursue hard money as a means for financing, what steps would they have to take to acquire a hard money loan? Hard money loans are acquired by working with a hard money lender, who has the capital and is set up to provide the financing for the purchase of the property. Once an investor has a property that they want to purchase they will need to apply for the loan and go through the lender’s underwriting process. At Lima One Capital the underwriting process can take as little as 7-10 business days depending on how quickly all the necessary documentation is provided by the borrower. After a borrower is pre-approved and has met the borrower underwriting guideline requirements the next step will be for the property to be appraised, if the property meets the property guidelines then the borrower will be moved to closing. Once all the required documents and insurance have been approved by the hard money lender the loan will close. When the loan closes the borrower will be funded the money needed for the purchase and rehab of the property and the term of the loan will begin.

Pros of Hard Money Loans

Below are highlights of some of the pros mentioned above to using a hard money loan to finance an investment property.

  • Higher leverage of capital
  • Faster closings
  • Shorter terms
  • Easier access to financing than with a traditional bank

Using hard money is an excellent alternative to going to a traditional bank for financing on a real estate investment deal. There is more flexibility for real estate investors and the speed and leverage that can be used through a hard money loan enables investors to do more deals and offers them a better chance to increase their profits as well as their return on investment.

Types of Hard Money Loans

Hard money loans can be used for a variety of different investment projects, below you will find a list of different options to use a hard money loan to finance your next real estate investment:

  • Fix-and-Flip
  • Construction
  • New Construction
  • Cash-out
  • Transactional Funding
  • Long-term rental
  • Multifamily

These loans serve different purposes but can be effectively financed through the use of a hard money loan. Real estate investors have a variety of needs and interests and the hard money loans from these Lima One Capital programs are available to fit those needs.

Hard Money Loans for Real Estate Investors

Real estate investing has continued to rise and remain a popular form of investing in the United States. To date the number of investors doing fix-and-flip investing has reached pre-housing bubble highs and investors are bringing home record profits. Providing hard money loans for real estate investors has also become more popular as well with more hard money lenders looking to get in the game.

To ensure that a potential real estate investor is ready to get started in investing here are a few tips on what to know before getting started.

Do Your Homework

Learn the ins and outs of what it takes to be a successful real estate investor. There are many paths that a potential investor can take towards accomplishing their investing goals and understanding which works best for you is a great first step to working towards your investing goals. Understanding how to estimate rehab costs and running price comparisons of other houses in the same neighborhood as your property can help save on costly expenses down the road.


Find a mentor or attend local REIA (Real Estate Investors Associations) who you can make connections with to help you with the real estate investing process. Many of the people who attend or speak at these meetings have made mistakes and know the best practices from their past experiences and would love to share them with you. They can also help you connect with contractors or other valuable members to a real estate investing team.

Take the First Step

After doing your homework and learning the ends and outs of investing take the first step towards making your investing goals a reality! Analysis paralysis can delay new investors from taking the necessary action to get starting with investing so just taking the first step goes a long way in becoming a successful real estate investor.

Hard Money Loan Rates

At Lima One Capital the interest rates and terms on our short term product, the FixNFlip, start at 12% and go as low as 7.99% based on borrower experience.  Borrower experience is defined as the number of completed flips in the last 12-24 months, even deals that weren’t financed by Lima One Capital!  Tier 1 is designated as borrowers who have never completed a flip or have completed one deal.  Tier 2 offers an interest rate of 11% to borrowers who have completed 2-4 deals in the last 24 months.  Tier 3 is for the more experienced investors who have completed 5 or more flips in the last 24 months.  Tier 4 is considered for elite real estate investors who have completed 15 or more flips in the last 12 months.  Again these deals don’t have to be financed by Lima One Capital as long as they were completed and flipped in the last 12-24 months!

We also offer Construction, New Construction, Cash-out, Transactional Funding, and Multifamily investment property deals.

With our long-term product, the Rental30, can be used for the purchase or refinance of an investment property that will serve as a long term rental.  The Rental30 is perfect for buy-and-hold investors who are looking to grow their rental property portfolio and use rentals as a passive stream of monthly income.

Our loan programs are available throughout our entire lending area, if you would like to view a map of our lending area, click here.

Hard Money Lenders

Hard money lenders provide the financing for the purchase and rehab of investment properties for real estate investors looking for capital to fund their projects.  When looking for a hard money lender investors should look for lenders with a set fee structure, meaning they don’t say “it depends” when you ask them about their rates and terms.  When a lender uses your credit score or the property value to determine the “best rate” for your project, it most likely is not.  Real estate investors should also be wary of any hidden costs or junk fees.  These are fees that range from application, doc prep fees, and even processing fees that are completely unnecessary and can cost real estate investors thousands in out of pocket expenses.  Another factor to look for in a hard money lender is whether or not they offer financing for both the purchase and rehab of an investment property or just the financing for the purchase of the property.  Real estate investors should look for a hard money lender that offers straightforward rates and terms, no hidden costs or junk fees, offers lending on both the purchase price and the rehab to the borrower and has the infrastructure to provide them with every opportunity to be successful with their investment.

Ready to Get Started?

At Lima One Capital we take great pride in being one of the top hard money lenders in the country.  We have a passion for real estate and the positive impact that real estate investors have on their cities and communities.   We currently lend in 42 states including Washington, D.C. and we make it easy to finance all of your rental properties, fix-and-flip projects, and multifamily investments.  If you have any questions about Lima One Capital or our loan programs feel free to contact us at 1-800-390-4212, or complete a contact us form, we’d be happy to answer any of your questions.  If you’re ready to apply click here and fill out our simple, two minute application.