Hard money lenders and private money sources charge significantly higher rates than traditional banks—but they're willing to fund deals traditional lenders won't touch. Understanding the full pricing structure helps you accurately calculate returns and avoid nasty surprises on closing day.
Why Hard Money Costs More
Hard money lenders assume higher risk and move faster than conventional lenders. They typically lend 65–80% of the after-repair value (ARV) of a property, meaning you cover the rest with your own capital. That speed and flexibility comes at a price: interest rates typically range from 8% to 15% annually, depending on your credit, the property type, and your exit strategy.
Traditional banks take 30–45 days to close and require extensive documentation. Private lenders close in 7–14 days and care more about the deal itself than your credit score. That acceleration costs money.
Origination Fees and Points
Beyond interest, expect an origination fee or "points" charged upfront. This is typically 1–3 points (1 point = 1% of the loan amount). A $300,000 hard money loan at 2 points costs you $6,000 due at closing.
Some lenders bundle origination into the interest rate itself, so always ask how fees are structured. A 12% rate with zero points may actually be cheaper than 10% with 3 points if you're only borrowing for six months.
Prepayment Penalties
Many hard money lenders include prepayment penalties or yield maintenance clauses. This means if you pay off the loan early—even if you sell the property and profit—you owe an extra fee. Typical penalties range from 1–3% of the remaining balance or 3–6 months of interest.
Ask upfront whether the loan allows early payoff without penalty. If you're planning a quick fix-and-flip (6–12 months), a harsh prepayment penalty can eat into your profit significantly.
Appraisal and Due Diligence Fees
Hard money lenders order appraisals to verify the property's value. Expect to pay $400–$800 for the appraisal, usually due upfront or at closing. Some lenders also charge inspection or due diligence fees ($200–$500) to verify the property condition and your claim of value.
These fees are less negotiable than interest rate, but comparing multiple lenders helps you avoid the highest outliers.
Extension Fees and Other Add-Ons
If you need more time to renovate or find a buyer, you'll pay extension fees—typically 0.5–1% of the loan balance per month extended. A $300,000 loan extended three months could cost $4,500–$9,000 in extension fees alone.
Other potential charges include:
- Underwriting fees: $500–$1,500 to process your application
- Title insurance and legal fees: $800–$2,000 depending on state
- Processing and administrative fees: $250–$1,000
- Servicing fees: Some lenders charge monthly servicing on top of interest
Always request a complete Loan Estimate that itemizes every cost before you commit.
Interest-Only vs. Fully Amortized
Most hard money loans are interest-only, meaning you only pay interest during the loan term and repay the principal at the end (balloon payment). This is cheaper monthly but requires an exit strategy—you must sell the property, refinance, or have cash reserves.
A few lenders offer fully amortized hard money loans, which include principal payments. These have lower risk for the lender but higher monthly payments for you. Interest-only is the norm for fix-and-flip investors; full amortization suits longer-term rental investments.
Real-World Example
Say you're buying a distressed property worth $200,000 as-is for $150,000. You need $100,000 in renovations, so the ARV is $400,000. A hard money lender might offer:
- Loan amount: $300,000 (75% of ARV)
- Interest rate: 11% annually
- Points: 2 points = $6,000
- Term: 12 months, interest-only
- Prepayment penalty: 2% of balance if paid early
- Monthly payment: $2,750 (interest only)
Total cost over 12 months: $33,000 in interest + $6,000 points = $39,000. If you sell after repairs and cover closing costs, net profit depends on your sale price and holding period.
Platforms like Mercoly let you compare multiple hard money lenders side-by-side, so you can see rates, fees, and terms from trusted providers in one place.
Frequently Asked Questions
Q: Can I negotiate interest rates and points with hard money lenders? Yes—rates and points vary by lender, credit profile, and deal strength. Always shop multiple lenders and compare complete Loan Estimates; strong deals in desirable areas get better pricing.
Q: What credit score do I need for hard money? Hard money lenders typically don't have a minimum credit score, but scores below 620 may trigger higher rates or require a larger down payment. The deal's numbers matter more than your personal credit.
Q: How do I avoid getting stuck with a bad hard money rate? Request a full Loan Estimate with all fees itemized, ask about prepayment penalties upfront, and compare at least three lenders before closing. Use a broker or platform to access multiple sources quickly.
Start comparing hard money lenders today on Mercoly to find the best pricing for your next deal.