Hard Money vs. Fix and Flip Loans: Choosing the Right Financial Option

As a real estate investor, it’s all too likely that you’ve encountered several different financing options that could make – or break your next deal. Two of the most popular options for investment properties are hard money loans and fix-and-flip loans. 

But which one’s better for your specific requirements? 

Hard money loans are flexible and asset-based, ideal for real estate investments. Fix and flip loans, on the other hand, are designed for short-term renovation projects. Understanding how they differ from each other can help put you in the right direction based on your investment strategy, timeline, and financial situation. 

By the end of this guide, you’ll have grabbed the basic understanding of how hard money loans and fix and flip loans compare, their advantages and disadvantages, and which option suits you best. 

Key Takeaways 

• Hard money loans are flexible, asset-based loans usable for flips, rentals, bridge loans, and more.
• Fix-and-flip loans are tailored for short-term renovation and resale projects.
• Hard money loans offer fast closings (7–14 days) and fewer credit requirements.
• Fix and flip loans provide built-in renovation funding and draw schedules aligned with project milestones.
• Both loan types come with higher interest rates and fees than traditional financing.
• A clear exit strategy is important before taking on either loan.
• Hard money works well for experienced investors; fix and flip loans suit newer flippers needing more guidance.

What is a Hard Money Loan? 

A hard money loan is a short-term financing option. It’s based on the value of the property itself, rather than the borrower’s credit history. These asset-based loans are funded by private money lenders or specialized hard money lenders who prioritize the investment’s potential. 

Unlike traditional banks or credit unions, hard money lenders offer more flexible financing options and underwriting guidelines. This is especially useful for investors or borrowers working on tight timelines. 

Who are Hard Money Loans Best For? 

• Real estate investors who need a quick funding option 
• Self-employed individuals who are struggling with documenting their income for conventional mortgages 
• Investors who have purchased investment properties that need to be closed quickly 
• Individuals who may have an inadequate credit history and don’t qualify for traditional financing options 
• Investors who work in competitive markets and under tight deadlines 

Example 

A real estate investor comes across a distressed property. It’s initially priced at $150,000, but has an expected value of $220,000 after making necessary repairs. They now leverage a hard money loan to both buy and rehab the property. Once the repairs have been made, the investor exits the deal and has two options: flip the property for a profit or refinance it into a long-term financing plan. 

What is a Fix and Flip Loan? 

Fix and flip loans are short-term financing options created specifically for investors who purchase, renovate, and sell properties for a profit. The loans are designed to cover both the acquisition and the renovation costs and offer a streamlined option for fix-and-flip projects. 

The term range of such loans is 6 to 24 months. Most lenders allow interest-only payments during the rehab phase, making it easier for investors to manage the cash flow during the holding period. 

Who are Fix and Flip Loans Best For? 

• House flippers who focus primarily on fix-and-flip investments 
• Real estate investors who want a loan product designed for flip projects 
• Individuals who are looking for finance options that can cover both acquisition and renovation costs 
• Real estate investors who have a clear exit strategy for quick resale 
• Flip projects that require major renovation work 

Example 

A real estate flipper purchases a property for $180,000. However, the renovation will cost an estimated $40,000. The investor obtains a fix-and-flip loan that covers the full $220,000 required for both purchase and rehab. Once the renovations have been completed, say over a period of 4 months, the investor sells the property for $290,000. The loan is repaid at closing, and the balance is the investor’s profit. 

Key Differences Between Hard Money and Fix and Flip Loans 

Loan Purpose and Flexibility 

Hard money loans are flexible and can be used for a variety of real estate investments, from buy-and-hold deals to commercial properties, bridge loans, and fix-and-flip deals. This adaptable structure makes them suitable for real estate investors who are looking to pursue different strategies. 

Fix and flip loans, on the other hand, are designed specifically for renovation and resale flip projects. These loans are typically structured to cover both the purchase and renovation costs based on construction progress. 

Loan Terms and Structure 

Hard money loans feature:

• Short-term loans that range from 6 to 24 months 
• Interest rates range between 8 % and 15 %
• Flexible loan amounts based on property value 
• Interest-only payments 
• Quick approvals and funding (usually within a couple of days)

Fix and flip loans feature: 

• Terms specifically aligned with flip project timelines (typically 6 to 18 months)
• Interest rates ranging between 8 % and 15 % 
• Built-in renovation costs funding 
• Draw schedules for rehab costs 
• Undewriting guidelines specifically for flip projects 

Qualification Criteria 

Hard money lenders focus on: 

• Property value and loan-to-value ratio which is usually capped at 65 to 75 %
• The potential of the investment property
• The borrower’s real estate experience 
• How viable the exit strategy is 
• Minimal credit history requirements 

Fix and flip loans require: 

• Detailed renovation plans, schedules, and budgets 
• Estimates for rehab costs 
• Clear timelines for project completion and finalization 
• Experience with fix and flip projects 
• Sometimes, the minimum FICO requirement

Benefits of Hard Money and Fix and Flip Loans 

Hard Money Loan Benefits 

1. Flexibility 

Hard money loans offer exceptional flexibility. Since they’re asset-based loans, lenders typically focus primarily on the property’s value instead of the borrower’s income or credit history. This is particularly helpful if you’re self-employed or may not have a regular income stream. 

2. Speed

Another major advantage is how fast hard money loans are. They typically close within just 7 to 14 days. This allows real estate investors to remain competitive while still capitalizing quickly on time-sensitive opportunities. 

3. Versatility 

Hard money loans are limited to fix-and-flip projects. Lenders can also finance bridge loans, commercial deals, buy and hold properties, and even other non-conventional investments. 

Bridge Loan Options 

Bridge loans are short-term financing options for real estate investors who need short-term capital quickly. If you’re stuck in a tight closing window or need to purchase another flip project before your current one sells, a bridge loan is the ideal solution. 

These loans are offered by hard money lenders and are designed to move quickly. That means that instead of closing in weeks, you close in days. It’s important to note here, however, that this speed and flexibility come at a cost. That is, higher interest rates and fees compared to traditional loans. 

Fix and Flip Loan Benefits 

1.  Coverage 

Fix and flip loans are built specifically for renovation and flip projects. They usually combine both the purchase and rehab costs into one loan. This allows investors to reduce upfront capital requirements and avoid the need for separate financing solutions. 

2. Draws 

Another key feature of fix and flip loans is their draw schedule. Renovation funds are released in stages as project milestones are completed. This structure supports a more effective cash flow management and ensures that rehab capital is always available in a timely manner. 

3. Support 

Since lenders specialize in fix and flip loans, they’re familiar with risks and challenges. This means they’re more likely to offer flexible terms and hands-on support during the renovation process. 

Important Considerations

Compared to traditional mortgages, both hard money and fix-and-flip loans come with the highest interest rates. However, since these loans are short-term, the total interest you pay is manageable, especially if projects are wrapped up quickly. 

Borrowers also need to consider the upfront fees involved. These include origination charges, processing fees, and appraisal costs. Since these costs can impact the overall profitability of your project, it’s important to account for them in project budgeting. 

Most importantly, these loans require a clear exit strategy. Selling, refinancing, or any other repayment method must ideally be planned from the start. This protects both the investor and the investment. 

How to Choose the Right Financing Option? 

Choose a Hard Money Loan If: 

• You need flexibility to support different investment strategies. Hard money loans work well for fix and flips, bridge options, rental acquisitions, and more. 
• You’re working in a competitive market where deals are closing fast. Hard money lenders help you close in days instead of the typical week-long timeframe.
• You’re experienced with such loans and can confidently manage deals. 
• You’re looking to build a long-term relationship with a lender that pays off with faster funding and better terms.

Choose a Fix and Flip Loan If:

• Your main focus is on fixing, flipping, and reselling properties.
• You prefer a financing option that can cover both the purchase and renovation costs in one loan.
• You’re relatively new to the real estate market and want a loan product that offers structure and guidance.
• Your flip project involves rehab work, and a draw schedule would be ideal. 

Next Steps in the Loan Process 

Loan Application and Documentation 

Once you submit your application with property details and rehab plans, lenders review it to understand the project’s scope and potential. 

Underwriting and Approval

Hard money lenders evaluate your property’s value and exit strategy. Fix and flip loans require credit and project history checks. 

Closing and Funding 

If approved, you can close the loan and receive your funds. Hard money loans close within 7 to 10 days. Fix and flip loans may take longer. 

Frequently Asked Questions (FAQs)

What is the difference between hard money and fix-and-flip?

The main difference lies in the scope. Hard money loans can be used for rentals, bridge deals, and flips. Fix and flip loans, however, are designed exclusively for flip projects. 

Is it better to use a conventional loan or a hard money loan for flips?

For most flip projects, hard money loans are preferred. Compared to banks that take 30 to 45 days, hard money loans close within 7 to 14 days. They close faster, require less documentation, and focus on the property’s value rather than your credit history. 

What are the cons of a hard money loan?

Some disadvantages of hard money loans include higher interest rates (8 to 15 %), higher upfront fees, larger cash requirements due to lower LTVs, and potential risk if a solid exit strategy doesn’t exist. 

Why would someone want a hard money loan?

Hard money loans are ideal for investors who have non-traditional incomes, need to move quickly, or are purchasing properties that may not qualify for conventional financing. 

How Do You Choose Between Hard Money and Fix and Flip Loans? 

Choosing the right loan depends on your investment strategy and project timeline.

• If you need maximum flexibility, hard money loans offer versatility for fix-and-flip projects, buy-and-hold properties, and bridge loans.
• If you're focusing specifically on renovation and resale projects, fix and flip loans provide a specialized structure with built-in renovation costs funding and draw schedules.
• If speed is important, hard money loans offer the fastest approval and funding.
• If you're newer to real estate investing, fix and flip loans provide more guidance.

Looking for the right financing option for your real estate investment? Contact Truss Financial Group today to discuss your loan options and find the best solution for your investment strategy.