Loan Officer's Guide to Hard Money

You have already met the borrower this article is about. A self-employed investor walks in with a great-looking deal — a distressed three-bed she’s buying at $210,000, plans to put $60,000 into, and expects to be worth $340,000 in four months. Her credit is fine. Her bank statements are strong. And you still can’t do the loan, because the property is vacant and gutted, she’s buying in an LLC, and your investor won’t touch a non-warrantable rehab on a 30-day agency clock.

So she leaves. Someone else funds the flip, refinances her into a rental loan when it stabilizes, and owns that client’s next ten deals. You did all the relationship work and captured none of the revenue.

Hard money is how you stop giving those borrowers away. This guide explains how asset-based lending actually works so you can recognize the file on sight, set the borrower’s expectations correctly, and — through a referral or broker relationship — get paid on a deal you were previously forced to decline. It pairs with our hard money product hub, which carries the current terms.

What hard money is — in terms you already use

A hard money loan is short-term, asset-based financing secured by investment real estate. The difference from everything on your rate sheet is the underwriting basis. Your agency files are underwritten on the borrower: income, DTI, credit, reserves, and DU/LP findings. A hard money file is underwritten on the deal: what the property is worth after repair, how much of the total cost the loan will cover, whether the scope of work is real, and how the borrower exits the loan.

That single shift explains everything else that feels foreign about it:

• No DTI calculation. The borrower’s personal debt-to-income ratio is largely irrelevant. A 55% DTI that kills your conventional file doesn’t matter here.
• Interest-only, short term. Typical terms run 6–18 months, interest-only, with a balloon at the exit. Principal doesn’t amortize during the hold.
• Speed. A complete file closes in 7–10 business days because there’s no income-documentation gauntlet.
• Entity vesting is normal. Borrowing in an LLC is expected, not an exception to underwrite around.
• Higher rate, by design. You’re pricing speed, property risk, and a short hold — not a 30-year consumer mortgage.

If it helps, think of hard money as the opposite of the loan you’re used to: your agency file spends 30–45 days proving the borrower deserves the money; a hard money file spends 7–10 days proving the deal does.

The four numbers that drive approval

You don’t need to underwrite these deals — but knowing the four numbers lets you tell a borrower in five minutes whether their scenario is real before you send it over.

1. After-Repair Value (ARV). The comp-supported value of the property once the rehab is done. Lenders cap the loan at a percentage of ARV — commonly 70–75% — so there’s an equity cushion at exit.

2. Loan-to-Cost (LTC). How much of the total project basis (purchase + rehab) the lender funds. An 85–90% LTC means the borrower brings 10–15% plus closing costs and reserves.

3. Scope of work. A line-item rehab budget. Weak or vague scopes are the single most common reason a promising file stalls, because the ARV can’t be trusted without them.

4. Exit. How the loan gets paid off — sale of the flip, a refinance into a DSCR loan, or a bridge payoff. No credible exit, no deal.

The lower of the ARV cap and the LTC cap wins. On our example flip: $270,000 all-in cost, $340,000 ARV. At 90% LTC the loan could be $243,000; at 75% of ARV the loan caps at $255,000. The LTC number is lower, so the loan is $243,000, and the borrower brings ~$27,000 plus costs. You can run that math on a napkin — or point the borrower at the fix and flip calculator — the moment they describe the deal.

The declined files that are actually hard money files

Here’s the reframe that matters for your pipeline. Most deals you decline aren’t dead — they’re just not agency deals. Sort your “no” pile by why you said no:

You declined because…	Hard money answer
Property is vacant, gutted, or non-warrantable	Condition is the collateral thesis, not a defect
Borrower is buying in an LLC	Entity vesting is standard
Self-employed borrower fails DTI	No DTI — underwritten on the asset
Needs to close in 10 days (auction, short contract)	7–10 business day close is normal
Borrower already has 10 financed properties	Agency limit doesn’t apply
It’s a flip, not a hold	This is the core use case

If you declined because the borrower is genuinely uncreditworthy or the deal doesn’t pencil, that’s a real no. But if you declined because the property or the entity didn’t fit an agency overlay, you were sitting on a referral. When you spot one, you can send the scenario to us in a few minutes and we’ll tell you same-day whether it’s fundable.

Rates, terms, and timelines to set expectations

You don’t quote these — but you should be able to frame them so the borrower isn’t shocked and you look like the expert who saw it coming.

• Rate band (2026): roughly 8.99%–13.5% interest-only, priced by sponsor experience, leverage, and property risk.
• Points: typically 1.5–3 origination points.
• Term: 6–18 months, interest-only, balloon at exit.
• Close: 7–10 business days on a complete file.
• Draws: rehab money is not wired at closing. It releases in milestone draws after inspection — usually 3–5 business days per draw.

The framing that keeps a borrower calm: hard money is expensive per month and cheap per deal, because the hold is short. The variable that determines total cost isn’t the rate — it’s how long the property sits. A flip that runs six months instead of four is where the profit erodes, not at the note rate.

A worked example you can walk a borrower through

Your investor client finds a $210,000 distressed property, budgets $60,000 in rehab, and expects a $340,000 ARV.

• Total project cost: $270,000
• Loan at 90% LTC: $243,000 (capped below the 75%-ARV ceiling of $255,000)
• Borrower cash in: ~$27,000 + closing costs + reserves
• Carry: at 11% IO on $243,000, roughly $2,228/month
• Four-month hold carry: ~$8,900
• Exit: sell at $340,000, or refinance into a DSCR loan and keep it as a rental

The borrower’s decision is driven by the spread between ARV and total cost-plus-carry — not by the note rate in isolation. When you can narrate that, you’re no longer the LO who said no; you’re the advisor who handed them a fundable path.

How the file actually moves, step by step

Part of sounding credible is knowing the sequence, so you can tell a borrower what happens after you hand it off. A clean hard money file runs like this:

Day	What happens
0	Borrower submits address, purchase contract, comps, line-item scope, and proof of liquidity
1–2	Lender sets the LTC and ARV caps and issues a term sheet
2–5	Title, entity docs (LLC operating agreement, EIN), and a light appraisal or desktop valuation ordered
6–9	Conditions cleared; closing scheduled
7–10	Loan funds; purchase closes
Ongoing	Rehab funds release in milestone draws after inspection

The two things that stall this timeline are almost never the lender: they’re a thin scope of work (line items missing, numbers that don’t match the property’s condition) and weak comps (no true after-repair support). When you coach a borrower to bring a real scope and three solid ARV comps, you compress the whole timeline — and you look like the person who knew how to package it.

What your borrower will ask you — and how to answer

You’ll field these questions the moment you mention hard money. Having crisp answers is what turns a decline into a confident hand-off:

“Why is the rate so high?” Because you’re renting speed and flexibility for a few months, not buying a 30-year mortgage. On a four-month flip, the rate is a rounding error next to the spread between purchase-plus-rehab and resale. Model the carry, not the coupon.

“Do I have to personally qualify?” Not the way you do for an agency loan. There’s no DTI test and no tax-return income calculation. Credit and liquidity affect pricing and leverage, but the deal carries the file.

“Can I close in my LLC?” Yes — that’s the norm. Investors are expected to vest in an entity.

“What if I can’t sell in time?” That’s why the exit is underwritten up front. If the flip doesn’t sell, the standard fallback is a refinance into a DSCR loan and holding it as a rental, or a short bridge extension. A borrower with two viable exits is a borrower who gets approved.

“How much cash do I actually need?” The down-payment gap (project cost minus loan), plus closing costs, plus a carry reserve for the interest-only payments during rehab. Under-reserving is the most common reason a good deal goes sideways mid-project.

A second example: the bridge, not the flip

Not every hard money file is a flip. Just as often it’s a bridge — a timing problem, not a rehab problem.

Your client owns a rental free and clear worth $500,000 and has 11 days to close on a new $400,000 acquisition before the seller walks. An agency cash-out refi takes 30–45 days he doesn’t have. A hard money bridge against the paid-off rental funds in time:

• Bridge loan: ~$325,000 (65% of the $500,000 property) in 9 business days
• Use: cash to close the new purchase on schedule
• Exit: the borrower completes the slower agency cash-out afterward and pays off the bridge, or refinances the new property into a DSCR loan

Same product, completely different job. When you can spot both the flip file and the bridge file, you stop leaving deals on the table over timing you assumed was fatal.

Hard money vs. DSCR vs. agency: a cheat sheet

The fastest way to route a file correctly is to know which product each borrower situation belongs to:

	Hard money	DSCR	Agency (your rate sheet)
Underwritten on	The deal (ARV/LTC)	The property’s cash flow	The borrower (DTI/income)
Term	6–18 mo, interest-only	30 yr (perm hold)	15–30 yr
Best for	Flips, rehab, fast close, bridge	Stabilized rentals, portfolios	Owner-occupied, W-2 borrowers
Close speed	7–10 business days	Faster than agency	30–45 days
Property condition	Distressed OK	Rent-ready	Warrantable only

The pattern: if the property needs work or the clock is short, it’s hard money. Once it’s stabilized and rented, it refinances into DSCR. That two-step is a single client relationship — and both halves can be yours.

Your move: refer it or broker it

You don’t underwrite hard money, service it, or take on its risk. You do one of two things with it:

Refer it. Send us the borrower and the deal; we originate and fund; you’re paid a referral fee. This is the lowest-friction path and the right default for most residential LOs.

Broker it. Stay on the file and broker it through Jaken Finance Group for broker compensation if you want to remain hands-on.

One point worth understanding, because it’s specific to your world: the referral-fee restrictions you live under on consumer mortgages come from RESPA, which governs consumer-purpose, residential-mortgage transactions. A hard money loan on non-owner-occupied investment property is a business-purpose loan — a different regulatory category. That’s why getting paid to refer these deals is treated differently than getting paid to refer a purchase mortgage. It is not a loophole and it is not automatic — state licensing rules vary and you should confirm your specific situation with your compliance department or counsel — but it’s the reason this revenue stream is open to you at all.

The clean, compliant way to start is our referral-partner program: you send scenarios, we handle origination and disclosure, and you keep the client relationship for the eventual agency or DSCR takeout. If you’d rather broker, become a Jaken Finance Group broker and we’ll set you up.

This guide is part of our complete financing playbook for loan officers — the deals outside the agency box and how to get paid on them.

The bottom line

Hard money isn’t a product you learn to underwrite — it’s a product you learn to recognize. Every week you decline files that died on property condition, entity vesting, timeline, or DTI while the borrower was perfectly good. Those are the deals to send. Learn the four numbers, set the borrower’s expectations, and route the file to a partner who funds it.

Next time that investor with the gutted three-bed walks in, you don’t lose her. You keep her — and the ten deals behind her. Send us the scenario and we’ll tell you today whether it’s real.