Hard Money vs. Conventional Loan: Which Fits Your Deal?
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Key takeaways
- Conventional wins on rate; hard money wins on speed, property condition and leverage against cost.
- The right test is whether the deal’s margin comfortably absorbs the extra financing cost.
- Many investors use both: hard money to acquire and renovate, conventional or DSCR to hold.
The comparison
| Factor | Hard money | Conventional investor loan |
|---|---|---|
| Time to close | 5–10 business days | 30–45 days |
| Rate | 8–13% | 6.5–8% (investor pricing) |
| Points/fees | 1–3 points + $1–2K | 0–1 point + typical closing costs |
| Term | 6–24 months, balloon | 15–30 years, amortizing |
| Down payment | 10–25% of cost | 15–25% of price; no rehab funds |
| Property condition | Any; rehab financed | Must be habitable and appraise as-is |
| Income docs | None (liquidity only) | Full: tax returns, DTI ≤ 45% |
| Entity borrower | Required/preferred | Usually not allowed (Fannie/Freddie) |
| Financed property limit | None | 10 financed properties (agency) |
| Prepayment penalty | Rare | None |
When hard money is the right tool
- The property will not pass a conventional appraisal (no kitchen, roof damage, code violations).
- The seller requires a 14-day close or you are buying at auction.
- You need the rehab budget financed.
- You own more than 10 financed properties, or your tax returns do not support the payment.
- You are buying through an LLC and want the loan in the entity's name.
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When conventional is the right tool
- The property is move-in ready and you intend to hold it for years.
- You have 30+ days and W-2 or stable self-employment income.
- You are under the financed-property limit and have 20–25% down.
- The deal's return depends on the lowest possible payment, not on speed.
Worked example: a $300,000 flip
Purchase $300,000, rehab $60,000, ARV $480,000, 6-month project. Hard money at 10% with 2 points on a $324,000 loan (90% LTC): $16,200 interest + $6,480 points + $2,000 fees = $24,680 financing cost, and you fund $36,000 of cost plus the points. Conventional is unavailable because the property is distressed and the rehab is not financed — you would need $120,000 cash for 20% down plus the full $60,000 rehab. The hard money deal nets roughly $480,000 − $360,000 cost − $24,680 financing − $38,000 selling costs ≈ $57,000 on about $45,000 of cash deployed. The financing cost is real, but the deal does not exist without it.
Using both: the two-loan structure
Most rental investors eventually run a hybrid: hard money to acquire and renovate, then a refinance into a 30-year DSCR loan or, for borrowers with strong income and few properties, a conventional investor loan. The hard money loan's cost is then just the “admission price” to a property that could not be bought any other way. Read our BRRRR financing guide for the sequencing.