Fix and Flip Loan vs Hard Money Lender, Compared

A fix and flip loan from an institutional lender is a standardized short-term loan: on our program, up to 90% of the purchase price and 100% of the rehab budget, with the total capped at 75% of after-repair value, paid out in draws, for 12 months. A local hard money lender makes the same kind of loan from its own or its investors’ money, with terms set deal by deal.

Both are fine tools. They tend to differ in five places, and those five places are where the money is.

Where they differ

	Institutional fix and flip loan	Local hard money lender
Who sets terms	A published program	The lender, per deal
Rehab funding	Up to 100% of budget, in draws	Varies; some fund rehab, some don’t
Interest on rehab funds	Charged as drawn	Varies; some charge on the full loan from day one
Loan cap	75% of ARV	Varies; some lend on purchase price or as-is value only
Draws	Paid as work is completed, against the line-item budget	Timing, inspection method and fees vary
Odd properties	Eligible list is fixed	Often more flexible
Experience	Not required	Often a factor in terms

“Varies” is the honest answer for hard money. It’s a broad category, from one-person shops lending their own capital to large regional funds. Some local lenders beat a program on a particular deal. The point of the table is to know which questions to ask.

Interest on drawn funds

This is the line that most changes the cost, and it has nothing to do with the rate.

When the rehab money is held back and you pay interest only on what’s been paid out, your average balance is lower than the loan amount. When a lender charges interest on the full loan from closing (sometimes called Dutch interest), you pay on money still sitting in the lender’s account.

Take a deal: buy at $200,000, $60,000 of rehab, ARV $350,000. The loan is 90% of the price ($180,000) plus all the rehab ($60,000) = $240,000. The ARV cap is 75% of $350,000 = $262,500, so it doesn’t bite.

Now say the rehab is drawn in three $20,000 pieces at the end of months 2, 3 and 4, and the house sells at the end of month 6.

• Interest on the full loan: $240,000 × 6 months = 1,440,000 dollar-months of balance
• Interest on drawn funds: $180,000 × 6 + $20,000 × (4 + 3 + 2) = 1,080,000 + 180,000 = 1,260,000 dollar-months

That’s 12.5% less balance carrying interest, at whatever rate you’re quoted. Put another way, the average balance is $210,000 instead of $240,000. The three draws cost $900 in fees ($300 each). Run your own schedule in the fix and flip calculator, which figures interest on drawn funds.

The ARV cap

The cap protects the lender from a thin deal, and it’s where loans get cut. Take the same house, but the appraiser puts ARV at $300,000. 75% of that is $225,000, which is $15,000 less than the $240,000 the price and rehab would have produced. You bring $35,000 to closing instead of $20,000, before points and closing costs.

Some hard money lenders don’t use ARV at all and lend a percentage of price, or of as-is value. On a heavy rehab that can mean far less money than an ARV-based loan. On a deal where the ARV is shaky, it can mean the opposite. Know which method a lender uses before you compare their headline numbers.

Draws and holdbacks

Draw speed decides whether your contractor shows up next week. Ask any lender, us included, how a draw is requested, who inspects the work, how long funding takes after the request, and what each draw costs. Those four answers matter more than a quarter point of rate on a tight rehab schedule.

Either way, draws reimburse work that’s done. Your first round of materials and labor comes out of your pocket, so keep cash for at least one draw cycle beyond the down payment.

Points and fees

Points on this program aren’t published; they’re quoted per loan. That’s normal across both categories. When you compare quotes, add up everything: points, the draw fee times the number of draws you’ll take, any processing or underwriting fee, and the cost of an extension if the sale runs long. Two quotes with the same rate can be thousands apart once you do.

When local hard money wins

Be fair about it. A local lender who knows your market may close a deal a program can’t touch: a property type off the eligible list, a loan under $50,000, a purchase that has to close faster than an appraisal can be ordered. Relationship lenders also sometimes bend on terms for repeat borrowers.

If your deal fits the program (single family, 2-4 units, townhome or warrantable condo, $50,000 to $3,000,000, not owner-occupied), compare on total cost and on how much cash you’ll need. The terms are on the fix and flip loans page.