What Does HML Mean in Real Estate?

Hard money loans are a financing option used in real estate when traditional bank loans aren’t viable. These loans come from private lenders and are secured by the property rather than the borrower’s credit. They are commonly used for fix-and-flip projects, investment properties, or situations requiring fast funding.

Understanding their structure, costs, and suitability is essential before considering them.

Collateral Requirements

Hard money lenders base decisions on property value rather than a borrower’s financial history. Unlike banks that assess income, credit scores, and debt-to-income ratios, private lenders focus on the asset itself. If a borrower defaults, the lender can take ownership through foreclosure, making the property’s condition and marketability key factors in approval.

Lenders typically accept single-family homes, multi-unit residential properties, and commercial buildings as collateral. Some may also finance land or mixed-use developments. Properties in poor condition can qualify, but lenders often require a detailed renovation plan to ensure value appreciation. Additional real estate assets may sometimes be used as secondary collateral to reduce lender risk.

Loan-to-Value Focus

Hard money lenders assess risk using the loan-to-value (LTV) ratio, which compares the loan amount to the property’s appraised value. While conventional lenders may finance up to 90% LTV, hard money loans typically range from 60% to 75%, ensuring lenders have enough equity to mitigate potential losses.

For investors planning renovations, some lenders base LTV on the after-repair value (ARV) rather than the current market value. For example, an investor purchasing a distressed property for $200,000, investing $50,000 in renovations, and expecting a resale value of $350,000 might secure financing based on 70% of the ARV. This allows access to more capital upfront, though funds are often disbursed in stages as renovations progress.

Market conditions also influence LTV limits. In strong real estate markets, lenders may offer higher LTVs, while in volatile markets, they may impose stricter terms to reduce risk. Borrowers should expect more conservative lending criteria in areas with fluctuating property values.

Rates and Terms

Interest rates for hard money loans typically range from 8% to 15%, depending on the lender, location, and borrower’s experience. Since these loans come from private investors assuming greater risk, borrowing costs are higher than conventional financing. Experienced investors may secure lower rates, while riskier projects or inexperienced borrowers often face higher costs.

Origination fees, or points, usually range from 1% to 5% of the loan amount. A $300,000 loan with a 3% origination fee would require a $9,000 payment at closing. Some lenders impose prepayment penalties to discourage early repayment, which reduces their expected return. Reviewing the loan agreement carefully helps borrowers avoid unexpected costs.

Repayment terms are much shorter than traditional mortgages, typically lasting six months to three years. These loans are designed for quick turnarounds, making them ideal for investors who plan to sell or refinance within a short timeframe. Monthly payments often cover only interest, with the principal due as a lump sum at the end of the term. This structure keeps initial payments lower but requires a clear exit strategy to avoid financial strain.

Property Types Financed

Hard money lenders finance a variety of real estate assets, catering to investors needing flexible alternatives to conventional loans. Residential properties, including single-family homes, townhouses, and condominiums, are commonly financed, especially for fix-and-flip projects. Investors purchasing distressed homes at auction or through foreclosure often use hard money loans to close deals quickly before making renovations.

Multifamily properties such as duplexes, triplexes, and apartment buildings also attract hard money financing. Investors using value-add strategies—where improvements increase rental income and property value—can benefit from expedited funding to secure deals in competitive markets. Some lenders also finance newly constructed multifamily developments if there’s a clear plan for leasing or resale.

Commercial properties, including office buildings, retail spaces, and industrial warehouses, are another category frequently financed by private lenders. Borrowers repositioning underperforming assets, converting properties for alternative uses, or bridging the gap before securing long-term financing often turn to hard money loans. Some lenders also finance mixed-use developments, mobile home parks, and self-storage facilities when borrowers present a strong investment plan.