A hard money loan is a short-term loan secured by real estate and underwritten mainly on the value of the property and the equity in it, rather than on the borrower's income documentation or credit score. In California it is typically made by a private lender or arranged by a licensed private money broker, and it is used when a deal needs speed, flexibility or a structure a bank will not write.
The "hard" refers to the hard asset behind the loan: the real property. It does not mean the loan is difficult to understand. Once you see the moving parts, it is a simple product with a specific job.
How a hard money loan works
You borrow against a property you own or are buying. The lender looks at what the property is worth, how much you would owe in total, whether you can make the payments, and how the loan will be repaid. Because the loan is meant to be temporary, it is repaid when you sell, refinance, finish a project or stabilize the property.
In California the loan is normally documented with a promissory note and secured by a deed of trust recorded against the property. The deed of trust is what gives the lender its security interest. If you do not repay as agreed, the lender can enforce that security through the process California law provides. That is why the lender cares so much about equity: it is the cushion that protects the loan.
How it differs from a bank loan
A bank loan is built around the borrower's financial profile: tax returns, income history, credit and debt ratios. It is priced low and takes time. A hard money loan is built around the collateral and the plan. In practice that means:
- Underwriting focus. Equity, capacity to make payments and the exit, rather than a credit score driving the decision.
- Individual review. Every application is reviewed on its own facts instead of being run through a rigid scorecard.
- Term. Short, because the loan bridges to something else.
- Cost. Usually higher than a bank loan, in exchange for flexibility and speed. See our comparison of hard money and bank financing for how to weigh that trade.
Who uses hard money loans
Borrowers come to private lending because something about the situation does not fit a bank's box. Common examples include:
- An investor buying a property that needs work and will not qualify for conventional financing until it is repaired.
- A buyer with a purchase deadline that a bank's timeline cannot meet.
- An apartment owner who needs a loan to carry the property through a repositioning.
- A developer funding a ground-up or rehab project through a construction loan.
- A borrower with significant equity but income that is hard to document in the way a bank requires.
We offer private money and bridge loans secured by luxury residential, commercial and apartment collateral, and commercial hard money and bridge loans across California.
Key takeaways
- A hard money loan is a short-term loan secured by a deed of trust and underwritten primarily on property equity, payment capacity and the exit.
- It is a bridge to a sale, refinance or completed project, not a long-term mortgage.
- It usually costs more than a bank loan; the value is speed, flexibility and certainty of closing.
- The strongest files have real equity, a clear plan and a credible exit.
What lenders want to see
Expect to explain three things clearly. First, the property: what it is, its condition and what it is worth. Second, the equity: how much of the value you are putting in or already own. Third, the exit: how and when the loan gets paid off. Our write-up on what private lenders look at in underwriting goes deeper on each.
A clean file also helps. Have the property address, a purchase contract if you are buying, a description of the project or business plan, entity documents if you are borrowing through an LLC or similar, and any budget or schedule for work. The documents page lists what we typically ask for.
Questions to ask any hard money lender
- Is the lender making the loan itself, or is it a broker placing it with investors, and is it licensed?
- What are the full costs: interest, points, fees and any prepayment terms?
- What is the term, and what happens if I need more time?
- How are payments structured, and is there an interest reserve?
- What does the lender need from me before it can give a decision, and what could slow the closing?
- How do funds get released if the loan includes renovation money?
Ask for the answers in writing (see also questions to ask before choosing a private lender). A reputable lender will walk you through them without hesitation.
Risks to understand
Because the loan is short and secured by your property, the main risk is not being able to repay on time. If your sale falls through or a refinance is delayed, you may face extension costs or default remedies. Build a backup exit before you borrow, and be honest about your timeline. Hard money is a good tool when the plan is sound and a poor one when it is a hope.
We are a California licensed private money broker through the Department of Real Estate, registered with the Nationwide Mortgage Licensing System, and we have been in business since 2002. If you have a property and a plan, call us at (800) 943-1314 or start an application and we will review your file individually.
Published by the US Lending & Company underwriting desk. General information only — not legal, tax or investment advice.