--- title: The Pros & Cons of Hard Money Loans description: Looking for funding for your next investment property? Consider the pros and cons of hard money loans, what they are, and what type of projects they can finance. image: https://learn.upright.us/hubfs/Blog%20Image%20Resizing%20325%20x%20450.png --- [![Upright Real Estate Investment](https://learn.upright.us/hs-fs/hubfs/Upright_RGB_PrimaryLogo-2.png?width=175&height=42&name=Upright_RGB_PrimaryLogo-2.png "Upright Real Estate Investment")](https://upright.us/) [![Return Home \>](https://no-cache.hubspot.com/cta/default/2129804/90add894-e0b2-4f0c-bc22-7c5b348dd1d7.png)](https://cta-redirect.hubspot.com/cta/redirect/2129804/90add894-e0b2-4f0c-bc22-7c5b348dd1d7) [Back to the Blog](https://learn.upright.us/real-estate-investing-blog) # The Pros & Cons of Hard Money Loans June 17, 2022 | By [Atalokhai Ojeh, Real Estate and Financial Writer](https://learn.upright.us/real-estate-investing-blog/author/atalokhai-ojeh) One of the major setbacks that real estate investors encounter presents in the form of financing. The process of applying for a traditional loan involves a lot of hoops and this could result in losing out on a potential opportunity, especially since the market waits for no one. So, fast and readily available cash is a major requirement, and this is one of the primary benefits of hard money loans.  ## What is a Hard Money Loan? A [hard money loan](https://www.upright.us/loans/hard-money-loans) otherwise known as a bridge loan would typically be offered by a non-traditional or private lender and allow investors to avoid the extended process and extensive requirements of traditional loans.  In essence, lacking in areas such as having an excellent credit score, credit history, and consistent income among other typical requirements may not be deal-breakers for a hard money loan.  ![Alex Robertson, Fund That Flip Territory Manager with an investment property financed by us.](https://learn.upright.us/hs-fs/hubfs/Blog%20Image%20Resizing%20325%20x%20450.png?width=325&name=Blog%20Image%20Resizing%20325%20x%20450.png)Instead, a hard money lender is primarily concerned with the value of the property being used as collateral. This is because, in the event that the borrower is unable to meet the agreed terms, the lender would sell the property to recoup the funds released.  This loan type is usually for a short-term (typically 12 to 36 months, or at Fund That Flip, 6 to 12 or 6 to 18 months), is [non-conforming](https://www.investopedia.com/terms/n/non_conforming.asp), and is mainly used by investors for real estate transactions. Their characteristic feature of a short funding time frame is one of the reasons why investors opt for this loan type.  In addition, the asset-based lending nature of the loan, as well provision of access to construction capital while eliminating restrictive consumer underwriting and project oversight are among other leading reasons why real estate investors opt for hard money loans relative to traditional bank loans.  ## Benefits/Pros of Hard Money Loans  In the right situation, hard money loans are an excellent financial choice, and can also be a bailout option when you are in a tight spot. Here are some major benefits of opting for a hard money loan:  ### Limited Requirements  Traditional loans have a slew of requirements including a good credit score, good [debt-to-income ratio](https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/), decent credit history, recent W-2, and many others.  On the other hand, hard money loans may provide real estate investors who have a bad, fair, or little credit history with an avenue to skip all of those and get right to the capital to fund their project. Usually, most reputable lenders may consider creditworthiness alongside property value, however, the requirement is not mandated as it is with traditional loans.  Once the property is vetted and found to check the hard money lender’s boxes, you may be well on your way to securing that loan.  ### Ease of Access to Funds   One of the major impediments to real estate transactions is the long wait for funds disbursal, particularly if you are using a mortgage. This has not in any way been helped by the implemented mortgage lending regulations found in the [Dodd-Frank Act](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp). This implies that waiting for a loan could run into months, leading investors to lose out on potential real estate goldmines. Opting for a hard money loan could see funding provided within a few weeks.  Furthermore, running out of funds when working on a project that has a set timeline for completion could imply a whole lot of trouble. In such a scenario, a hard money loan could allow you to meet your target thanks to easy and rapid access to funds.  ### Flexible Terms  Unlike traditional loans that have requirements mostly set in stone and provide little or no wiggle room, hard money loans allow more freedom. Since they are offered by private lenders, you might be able to negotiate the terms of the loan.  Since each deal is individualized and doesn’t follow a uniform underwriting process, you may be able to:  - Negotiate a repayment schedule to fit with your plans  - Eliminate or cut down certain fees such as the origination fee  - Negotiate interest rate (this is easier if you have a good track record with the lender). ### Choice of Collateral  Usually, the lender considers the investment property to be collateral for the loan. However, some lenders could provide a measure of freedom with respect to the choice of collateral.  For instance, personal assets such as your residential property or a retirement account could be put up to get the loan. You should note that this is not the case with all lenders.  ## Downsides/Cons of Hard Money Loans  Hard money loans may come with some major perks, but they also feature some downsides you’ll have to come to terms with. Here are some of the major cons of opting for a hard money loan:  ### Possibility of Losing Collateral  If you default on the loan and breach the terms of the agreement, the lender is within full rights to repossess the property. This would typically be sold to cover the funds disbursed. However, you can easily avoid this by [having a foolproof plan](https://www.forbes.com/advisor/in/investing/7-ways-to-minimize-risk-in-a-real-estate-investment/) and following the loan agreement: Make payments on time and within the stipulated loan duration, and you can avoid repossession altogether.  ### High Interest Rates  Hard money loans involve a significant measure of risk on the part of the lender, and this is typically reflected in the interest rates or the cost of the capital. Based on the terms of your loan, lenders may charge interest rates ranging from 8% to even 10% or more. ## Requirements for Hard Money Loans  The requirements for [hard money loans may differ from lender to lender](https://learn.upright.us/real-estate-investing-blog/choose-a-hard-money-lender), however, here are the basics that cut across board:  - Required down payment for property to be used as loan collateral (usually 30% to 40% for commercial properties and 10% to 30% for residential properties) or sufficient equity  - Origination fee/points (1% to 5% of the total loan amount) - Underwriting fees (range from $500 to $5000) - Closing costs  There might be certain other requirements that would be detailed by your lender.  ## What Can You Do With Hard Money Loans? The class of individuals who take the most advantage of hard money loans are real estate investors. They generally use the funds for one or more of the following: - Renovating and renting  - Transactional funding  - Property flipping  - New construction  ### Renovating and Renting  Some investors specialize in purchasing, renovating, and then renting out the projects. In this case, a longer refinance term might be necessary upon project completion to ensure that maximum value is gotten for the property.  ### Transactional Funding  Also known as wholesale funding, hard money loans are a go-to here because of their rapid funding process. Also, neither the seller nor the buyer need to be privy to your financial spread and is a solid alternative to using [contract assignments](https://www.masterclass.com/articles/assignment-of-contract-real-estate-guide).  ### Property Flipping  Property flippers commonly take out hard money loans to fund projects while said project also serves as collateral. However, lenders may have certain specific requirements.  For instance, a direct, hard money lender like Fund That Flip requires that the house flippers be experienced, so, in the event that a [house flipper is looking to use hard money](https://www.upright.us/loans/hard-money-loans/rehab-loans), they would need to have flipped a minimum of five houses.  ### New Construction  [Financing new construction](https://www.upright.us/loans/hard-money-loans/new-construction) of a real estate project can also be done using a hard money loan. The funds cover the cost of materials and workmanship, as outlined by the loan-to-cost in your agreement so you are able to complete construction seamlessly.  ## Conclusion  The benefits of hard money lending significantly outweigh the downside — particularly if you have a plan in place. It is a great way to rapidly access funds and exploit excellent investment opportunities. Overall, be sure to weigh your options so that you can make an informed decision that will work for you.  Considering a hard money loan for your next investment project? Apply in 5 minutes to get pre-approved for up to $5 million to make a winning bid. [![Get Funded](https://no-cache.hubspot.com/cta/default/2129804/4f35f4cf-5c72-4c75-a1ea-2f0e137b6dda.png)](https://cta-redirect.hubspot.com/cta/redirect/2129804/4f35f4cf-5c72-4c75-a1ea-2f0e137b6dda) - - - ### Returns up to 13% investing in real estate. Diversify your portfolio with short- or long-term investments, individual or pooled fund offerings, and hundreds of developers and project types throughout the U.S. [![Sign Up](https://no-cache.hubspot.com/cta/default/2129804/9beb5019-97e3-48ab-bc90-ee874cd213ac.png)](https://cta-redirect.hubspot.com/cta/redirect/2129804/9beb5019-97e3-48ab-bc90-ee874cd213ac) ### Loan commitments in about 24 hours, with pre-approval up to $5M to make winning bids. [![Apply Now](https://no-cache.hubspot.com/cta/default/2129804/3420ff91-259d-4238-ae5b-bda78b01cff5.png)](https://cta-redirect.hubspot.com/cta/redirect/2129804/3420ff91-259d-4238-ae5b-bda78b01cff5) [![](https://learn.upright.us/hubfs/DSCR.png)](https://learn.upright.us/real-estate-investing-blog/dscr-lending-that-works-as-hard-as-your-rentals) June 10, 2025 ## [Frictionless Financing for Your Next Rental](https://learn.upright.us/real-estate-investing-blog/dscr-lending-that-works-as-hard-as-your-rentals) by [Upright](https://learn.upright.us/real-estate-investing-blog/author/upright) [![](https://learn.upright.us/hubfs/Upright.png)](https://learn.upright.us/real-estate-investing-blog/what-happens-when-we-control-the-capital) June 04, 2025 ## [Fast Closings, a 4-Day Close Case Study](https://learn.upright.us/real-estate-investing-blog/what-happens-when-we-control-the-capital) by [Upright](https://learn.upright.us/real-estate-investing-blog/author/upright) **[Upright](https://www.upright.us/)** **1300 E. 9th Street, Ste. 800, Cleveland, OH 44114 Real Estate Investment [info@upright.us](mailto:info@upright.us) | [646-895-6090](tel:6468956090) [![Instagram](https://learn.upright.us/hs-fs/hubfs/Email_2023/mdi_instagram.png?width=29&height=29&name=mdi_instagram.png)](https://www.instagram.com/buildwith_upright/)  [![Linkedin](https://learn.upright.us/hs-fs/hubfs/Email_2023/linkedin-icon.png?width=29&height=29&name=linkedin-icon.png)](https://www.linkedin.com/company/buildwithupright/)  [![Facebook](https://learn.upright.us/hs-fs/hubfs/Email_2023/fb-icon.png?width=29&height=29&name=fb-icon.png)](https://www.facebook.com/buildwithupright)  [![TikTok](https://learn.upright.us/hs-fs/hubfs/Email_2023/tik-icon.png?width=29&height=29&name=tik-icon.png)](https://www.tiktok.com/@buildwith_upright?lang=en)  [![X Twitter](https://learn.upright.us/hs-fs/hubfs/Email_2023/x-icon.png?width=29&height=29&name=x-icon.png)](https://twitter.com/build_Upright)  [![YouTube](https://learn.upright.us/hs-fs/hubfs/Email_2023/ytb-icon.png?width=29&height=29&name=ytb-icon.png)](https://www.youtube.com/@buildwithupright)  [![Events](https://learn.upright.us/hs-fs/hubfs/Email_2023/calendar-icon.png?width=29&height=29&name=calendar-icon.png)](https://www.upright.us/events)**   Past performance is not indicative of future performance. Investors should not rely on forward-looking statements because such statements are inherently uncertain and involve risks. No returns are guaranteed and these types of investments involve a high degree of risk.   Neither the Securities and Exchange Commission (SEC) nor any federal or state securities commission, or any other regulatory authority has recommended or approved of the investment or the accuracy or inaccuracy of any of the information or materials provided by or through the website. Direct and indirect purchase of real estate property involves significant risks, including, but not limited to risk related to sale of land, market and industry risks, and risks specific to a given property. Investments are not bank deposits, are not insured by the FDIC or by any other Federal Government Agency, are not guaranteed by Fund That Flip, Inc. dba Upright, and may lose value.   Fund That Flip, Inc. dba Upright does not make investment recommendations and this message should not be construed as such. This message is not an offer to sell or the solicitation of an offer to buy any security, which can only be made through official offering documents that contain important information about risks, fees, and expenses. Any investment information contained herein has been secured from sources Fund That Flip, Inc. dba Upright believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. We recommend that you consult with a financial advisor, attorney, accountant, and any other professional who can help you to understand and assess the risks associated with any investment opportunity. If and when Fund That Flip, Inc. dba Upright is able to make investment opportunities available, only accredited investors who submit required verification will be able to invest.     **© Fund That Flip, Inc. dba Upright, 2024  | [Privacy Policy](https://www.upright.us/legal?tab=privacy-policy) | [General](https://www.upright.us/legal?tab=terms)[Terms of Service](https://www.upright.us/legal?tab=terms) [|](https://www.fundthatflip.com/terms-of-service) [Investment Terms of Service](https://www.upright.us/legal?tab=investment-tos)**     ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Atalokhai Ojeh, Real Estate and Financial Writer", "url" : "https://learn.upright.us/real-estate-investing-blog/author/atalokhai-ojeh" }, "dateModified" : "2023-11-07T15:02:50.792Z", "datePublished" : "2022-06-17T14:00:00.000Z", "headline" : "The Pros & Cons of Hard Money Loans", "image" : [ "https://learn.upright.us/hubfs/Blog%20Image%20Resizing%20325%20x%20450.png" ], "mainEntityOfPage" : { "@id" : "https://learn.upright.us/real-estate-investing-blog/pros-cons-hard-money-loans", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://learn.upright.us/hubfs/Upright_RGB_PrimaryLogo-1.png" }, "name" : "Upright" } } ```