California property glossary
Hard Money Loan
Also called private money, bridge loan, asset-based loan
Quick answer
A hard money loan is short-term, asset-based financing from a private lender rather than a bank, priced mainly on the property's value and exit plan rather than the borrower's credit.
Key facts
- Underwriting basis
- The property and the equity, far more than the borrower's income or credit
- Typical terms
- Short term measured in months, interest-only payments, points charged up front, and a balloon at maturity
- Speed
- Days to a couple of weeks — the reason it exists
- Cost
- Materially higher rate plus origination points; the effective annualized cost is what matters, not the headline rate
- Licensing
- California hard money is typically brokered or made under DRE or DFPI licensure; verify the license before signing
- Exit requirement
- The loan assumes a specific exit — sale or refinance — and fails badly without one
What it means
These loans carry higher interest rates (often 9-14%) and points than conventional financing, along with shorter terms — from six months to a few years — but underwriting moves quickly since approval centers on collateral value and ARV rather than income documentation.
Hard money is widely used across Northern California's investor market to fund fix-and-flip purchases on distressed houses in Sacramento, Placer, and Yuba counties, where a conventional 30-year loan wouldn't close fast enough or the home wouldn't qualify for financing in its current condition.
A buyer using hard money to purchase your property can typically close faster than a conventional buyer since there's no lengthy underwriting — but the higher carrying cost also shapes how aggressively that buyer can bid, which helps explain how investor offers get built.
Why this matters when you are selling
For a seller, hard money usually appears as an alternative to selling: borrow against the equity to solve the immediate problem — back taxes, a reinstatement, a probate advance, a repair needed to list — and keep the property. That can be the right call when there is a defined, near-term exit and enough equity to support the loan with room to spare. It is the wrong call when the loan is being used to postpone a decision, because the maturity date arrives in months, not years, and the balloon does not care why the exit did not materialize.
The honest comparison is cost against alternatives. Points and a high rate over six months can be cheaper than six more months of a foreclosure clock, deferred maintenance, and a distressed sale price. The same loan over eighteen months of extensions frequently is not. Anyone considering it should compute the total dollars — points plus interest plus exit fees — rather than compare rates, and should be candid about whether the exit is a plan or a hope.
Common mistakes
Comparing a hard money rate to a bank rate.
Instead: Compare total cost over the actual holding period, including points and any exit fee. A short expensive loan can cost less in dollars than a long cheap one that never funds.
Borrowing without a specific, dated exit.
Instead: Know precisely what pays this loan off and when. A balloon with no exit is a foreclosure with extra steps.
Not verifying licensure.
Instead: Check the lender or broker's license with the DRE or DFPI. Private lending attracts unlicensed operators, particularly around distressed property.
Questions people ask
Can I get a hard money loan while in foreclosure?
Often yes, if there is meaningful equity — that is precisely the situation these lenders underwrite. The proceeds pay the reinstatement or payoff and the foreclosure stops. The question to answer honestly first is what pays off the new loan at maturity.
Is borrowing better than selling?
It depends on the exit and the equity. If a property will sell in ninety days and the loan bridges to that closing, borrowing preserves value. If the loan is servicing a payment the household could not afford before, it converts equity into interest and delays the same decision at a worse price.
How much can I borrow?
Sized against value with a conservative loan-to-value ratio, since the lender's protection is the equity cushion rather than the borrower's income. Properties that are unusual, rural, or in poor condition are lent against more conservatively still.
Bottom line
Hard money buys speed, and speed is worth paying for when it bridges to a specific, dated exit. Verify the license, compute the total dollar cost over the real holding period rather than comparing rates, and be honest about the exit — because at maturity the balloon is due whether or not the plan worked.
Official sources
- California Department of Real Estate
License lookup for brokers arranging private money loans.
- California Department of Financial Protection and Innovation
Licensing under the California Financing Law and the complaint process.
Written and maintained by Sierra Property Buyers, a direct property buyer working across Northern California. Last reviewed July 2026. This page is general information about how California property transactions work — it is not legal, tax, or financial advice, and the specifics of any situation should be confirmed with an attorney, a CPA, or the relevant agency.
Have a property this affects?
Tell us the situation and we will tell you plainly whether a direct sale makes sense — including when listing would leave you with more.