
Hard money lenders can make a substantial income, with some lenders earning up to 12% to 18% interest per year.
Their profit margins are typically high due to the short-term nature of hard money loans, which often have terms ranging from a few months to a year or two.
Hard money lenders usually charge a points fee, which can range from 2% to 5% of the loan amount, in addition to interest.
This points fee can significantly increase the lender's profit margin, making it a lucrative business for those who specialize in it.
What Hard Money Lenders Do
Hard money lenders offer high-interest, short-term bridge loans primarily used in real estate transactions. They use the same contracts, mortgages, liens, titles, and title insurance as banks.
Pricing varies nationwide, but on average, hard money loans demand 10% to 12% interest rates, plus several points in loan fees for a six- to 12-month term.
They can close a loan in a matter of days, as opposed to weeks or months at the average bank. This is because they often have a broad buyer base for the finished products.
Hard money lenders typically use a borrower's real estate equity, not their credit or income, to determine loan eligibility.
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How Hard Money Lenders Make Money

Hard money lenders make money primarily through interest rate income. They can charge interest rates ranging from 8 percent to 18 percent, depending on the loan amount, the property's ARV, and the borrower's credit rating.
A borrower with bad credit is charged a higher interest rate, such as 15 percent, compared to someone with good or excellent credit. This results in higher monthly interest income for the hard money lender.
For example, making an interest-only loan for $100,000 at 9 percent interest yields a monthly interest income of $750. This is a significant source of revenue for hard money lenders.
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The Lending Process
Hard money lenders typically make between 8% and 18% interest on their loans, depending on the risk level and loan terms.
They usually lend between 50% and 70% of the property's value, leaving the borrower to cover the remaining 30% to 50%.
Hard money lenders often have a quick turnaround time, approving loans in as little as 24 to 48 hours.
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Assess the Deal
As a hard money lender, one of the most important steps in the lending process is to assess the deal. This involves evaluating the potential of the loan to generate a profit.
You've likely heard of the advantages of becoming a hard money lender, including the chance to earn a high return on investment. Becoming a hard money lender can be a lucrative business.
To size up the deal, you need to consider the needs of the local investor who is seeking the loan. This typically involves finding a local investor who needs a hard money loan.
The key advantages of becoming a hard money lender include the potential for high returns and the ability to be your own boss. You get to choose which loans to invest in and which to pass on.
Once you've found a local investor, you need to assess the deal to see if it makes sense for you to invest in. This involves evaluating the potential of the loan to generate a profit.
Becoming a hard money lender can be a rewarding experience, especially for those who enjoy taking calculated risks. It's essential to carefully evaluate each loan opportunity to ensure it aligns with your investment goals.
A unique perspective: Becoming a Hard Money Lender
Lending Process Overview

The lending process can seem daunting, but breaking it down into its core components makes it more manageable.
The process typically begins with a credit inquiry, which can impact your credit score.
You'll need to provide personal and financial information, such as income, employment history, and debt obligations, to lenders.
Lenders will review your credit report and score to assess your creditworthiness.
A credit score of 700 or higher is generally considered good, but requirements may vary between lenders.
The lender will then evaluate your loan application based on the provided information and creditworthiness assessment.
If approved, the lender will offer a loan with specific terms, such as interest rate and repayment period.
You'll have the opportunity to review and accept the loan terms before signing a loan agreement.
Curious to learn more? Check out: Hard Money Lender Terms
Fees and Charges
Hard money lenders charge various fees and charges that can add up quickly.
The origination fee is a fixed percentage of the total loan amount, paid at closing.

Service fees are flat fees paid at closing to service the loan throughout its life.
Points, or origination fees, are interchangeable in hard money loans and equal one percent of the loan amount.
One point can take a significant part of the whole loan cost, and hard money lenders often make money on points rather than interest.
Hard money lenders typically require a minimum of 20% of the purchase price as a down payment.
Upfront fees, including points, are a red flag, and it's essential to receive a written estimate of costs and understand them before moving forward.
Income from Loans
Hard money lenders can earn significant income from their loans, with interest rates ranging from 8 to 18 percent. For example, a $100,000 interest-only loan at 9 percent interest generates $750 in monthly interest income.
A borrower's credit rating also plays a significant role in determining the interest rate, with those having poor credit charged a higher rate, such as 15 percent, resulting in $1,250 per month in interest income.
Typical loans yield between 8 and 12 percent, often higher, making hard money lending a lucrative option for investors.
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Lucrative Work

Working as a commercial mortgage broker can be quite lucrative, especially in the niche market of hard money lending. Fees for brokering a hard money loan can start at 100 basis points and may rise to 150 or more.
A broker's fee is paid out of escrow once the loan is closed and recorded, and it doesn't decrease much as the size of the hard money loan increases. Bigger loans can be better for brokers, as their fees remain relatively stable.
A simple broker referral should earn about 25 to 50 basis points, but brokers should avoid getting involved in daisy chains, as some hard money lenders dislike paying for even one referral source.
Intriguing read: Hard Money Lender Brokers
Higher Returns
Typical hard money loans yield between 8% and 12%, often higher. This is a significant advantage over a savings account.
Hard money lenders can charge interest rates ranging from 8 percent to 18 percent, depending on the loan amount, property's ARV, and borrower's credit rating. A borrower with bad credit is charged a higher interest rate than someone with good or excellent credit.
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For example, an interest-only loan for $100,000 at 9 percent interest generates $750 in monthly interest income. Charging 15 percent interest can earn $1,250 per month.
Some hard money lenders make most of their money on points rather than interest. One point is equal to one percent of the loan amount, and points can take a significant part of the whole loan cost.
A borrower can lower their points costs by putting more money down and lowering their loan requests. However, this doesn't lessen the cost of points by finishing early.
Examples and Case Studies
Hard money lenders can earn between 12% and 18% interest on their loans, as seen in the case of a lender who charged 15% interest on a $200,000 loan.
In some cases, hard money lenders may also charge origination fees, which can range from 2% to 5% of the loan amount, as illustrated by a lender who charged 3% origination fee on a $300,000 loan.
Lenders may also earn money through loan servicing fees, which can be a flat rate or a percentage of the loan balance, as seen in a case where a lender charged a 1% servicing fee on a $500,000 loan.
Example 1

In Example 1, a customer asked to match a price offer from another lender. The other lender offered a 1-point origination fee and a $999 service fee, but a rate of 8.99%, which is nearly two points less than our rate of 10.75%.
The competitor's offer seemed very competitive, but there was a catch - they were offering 90% all-in, which is quite different from the 90% LTC offered by Kiavi. This difference is crucial to understand.
A customer who tends to hold their property for about five months, or 150 days, would be spending an additional $3,394 if they chose to go with the lower interest rate offering from the competing lender.
The main takeaway is that "90% all-in" is not the same as 90% LTC. This distinction can make a significant difference in the customer's cash-on-cash return perspective.
If the customer had gone with the competitor, they would have had to bring an additional $6,000 out of pocket to close the transaction.
Example 2

In our second example, a client was offered a competing loan with 12% interest and zero points or fees to close the deal, with the only closing costs being a flat $1,630.
The client was attracted to the prospect of paying nothing at closing, but the competing lender's offer had a catch - they would lend the lesser of three options: 85% LTC / 100% Rehab, 70% ARV, or 90% of all-in costs.
The client would have had to go with the competitor's offer, which in this case was the 85% LTC option with a loan amount of $243,331.
This means the client would have paid around $10,000 more despite the competing lender's "no closing cost" offering.
Frequently Asked Questions
What license do you need to be a hard money lender?
To become a hard money lender, you'll need a broker's license and additional licensing from the California Department of Real Estate, along with a minimum net worth requirement. This is just the starting point for a complex process, so read on to learn more.
Sources
- https://www.scotsmanguide.com/commercial/hard-money-soft-landing/
- https://accidentalrental.com/3-mistakes-hard-money-lender/
- https://www.kiavi.com/blog/understanding-the-math-behind-pricing-a-hard-money-loan
- https://realestatebees.com/how-much-does-a-hard-money-loan-cost/
- https://smallbusiness.chron.com/make-money-hardmoney-loans-68466.html
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