Hard Money Loans for House Flipping: Rates, Points, Draws and How Much Cash You Need

Most house flippers do not use cash or a conventional mortgage. They use hard money: short-term loans from private lenders who care more about the deal than your tax returns. Hard money makes flipping possible for people without hundreds of thousands in cash, but it is expensive, and its structure catches first-time flippers out. This guide explains how the loans work, how lenders calculate what they will lend and how much cash you really need.

All terms are illustrative ranges as of 2026. Verify current terms with multiple lenders.

Why flippers use hard money

Banks and conventional mortgages are designed for buyers who will live in a home or hold it long term, and they often will not lend on homes in poor condition. Hard money lenders are private companies or individuals who lend on the property's value and the investor's plan, close quickly and fund renovation costs.

Typical terms

First-time flippers often get lower leverage and higher rates. After two or three successful flips, terms usually improve.

How lenders calculate the loan

Lenders apply several limits and lend the lowest amount that satisfies all of them.

Example: purchase $165,000; rehab $45,000; ARV $300,000. Lender terms: 90 percent of purchase, 100 percent of rehab, maximum 70 percent of ARV.

• 90% of purchase = $148,500
• 100% of rehab = $45,000
• Total requested = $193,500
• 70% of ARV = $210,000 cap
• Loan amount = $193,500 (below the cap)

If the lender's ARV came in at $260,000 instead, 70 percent would be $182,000, and you would need to bring $11,500 more. Lender valuations matter, so support your ARV with strong comparable sales.

How rehab draws work

Most lenders hold the rehab money and release it in stages:

1. You pay for, or your contractor fronts, the first phase of work.
2. You request a draw with invoices and photos.
3. The lender sends an inspector to verify completion.
4. The lender releases funds for completed work, typically within a few business days.
5. Repeat until the rehab is complete.

Plan for the gap. You need enough cash to pay contractors before each draw reimburses you, often 10 to 25 percent of the rehab budget at any time. Many first flips stall not because the deal is bad, but because the investor runs out of cash between draws.

Tip: Agree a draw schedule with your contractor before closing, matched to the lender's draw process. Contractors who expect payment on Friday and a lender who funds the following Wednesday is a recipe for conflict.

Worked example: total cost of a hard money loan

Using the loan above ($193,500) on a five-month flip at 11 percent interest-only, with 2 points:

Cash needed

Even with a lender funding most of the deal, this flip needs roughly $46,000 of the investor's cash or a partner's. Many first-time flippers budget only the down payment and get caught short.

What lenders want to see from you

Hard money lenders lend on the deal, but they still evaluate the borrower. Prepare a simple deal package before you apply:

• ☐ Purchase contract and property address
• ☐ ARV estimate with three to five renovated comparable sales
• ☐ Line-item rehab budget with contingency
• ☐ Contractor bids or contractor details
• ☐ Project timeline from closing to sale
• ☐ Proof of funds for the down payment, closing costs and reserves
• ☐ Your experience, or your partner's or contractor's experience
• ☐ LLC documents if borrowing through an entity
• ☐ Exit plan: sale price, and a backup such as renting or refinancing

A clean, realistic package often earns better terms and faster approvals. Lenders see many inflated ARVs and thin rehab budgets; conservative numbers build credibility.

Hard money, private money and partners compared

Many experienced flippers combine sources: hard money for the first lien and a private lender or partner for part of the down payment and reserves. Whatever the structure, put terms in writing and follow securities and lending laws when raising money from others; talk to an attorney before taking investor funds.

How to choose a lender

Ask every lender the same questions and compare in a table:

• ☐ Interest rate, points and all fees, in writing
• ☐ Loan-to-cost, rehab funding percentage and ARV cap
• ☐ How they determine ARV
• ☐ Draw process, inspection fees and typical turnaround
• ☐ Term, extension options and extension fees
• ☐ Prepayment penalties
• ☐ Experience requirements for full leverage
• ☐ Time to close
• ☐ References from other local investors

The cheapest rate is not always the cheapest loan. A lender with slow draws can cost you more in contractor delays and holding costs than a slightly higher rate.

Ways to reduce financing risk

1. Buy right. A strong purchase price gives you room if costs rise.
2. Get a detailed rehab budget with contingency before you apply.
3. Keep reserves for interest, holding costs and draw gaps.
4. Plan an exit beyond selling, such as refinancing into a rental loan if the market slows.
5. Watch the term. Extensions are expensive; build a realistic timeline.

When hard money is not the answer

If a deal only works at maximum leverage with no reserves, the deal is probably too thin. Consider a partner who brings cash, private lenders such as individuals you know who want a secured return, or waiting until you have more capital. Losing a deal is cheaper than losing your savings on one.

Questions readers ask

Can I get a hard money loan with bad credit?

Hard money lenders focus mainly on the property and the deal, so some will lend to borrowers with imperfect credit. Expect lower leverage, higher rates or a requirement for more cash in the deal. Most still check credit, background and experience, and almost all require a personal guarantee.

What happens if my flip takes longer than the loan term?

You may need to request an extension, which usually costs a fee of around 0.5 to 1 point and sometimes a higher rate. If the lender refuses, you may have to refinance or sell quickly. Build a realistic timeline with a buffer, and keep reserves to cover extra months of interest and holding costs.

Is hard money interest tax-deductible?

Interest and loan costs on a flip are generally business expenses or part of the property's cost basis, depending on how your activity is classified. Talk to a CPA before your first deal.

Your next step

Call three local hard money lenders and request their term sheets. Plug each into the cash-needed table above for a deal you are considering.

The full guide, House Flipping for Beginners, covers ARV, the 70 percent rule, finding deals, hard money and other funding, rehab budgeting, contractors, permits, selling and taxes, for $0.99.