Hard money loan, fix and flip loan or bridge loan: what is the difference?

Hard money, a fix and flip loan and a bridge loan are not three different products. Hard money is the name investors use for a short-term loan secured by the property and sized mainly on the property, and a fix and flip loan and a bridge loan are two ways of using it. What separates them is the work: a fix and flip loan finances a property that needs renovation, and a bridge loan carries a property that needs little or none.

Investors search for all three names, and the words get mixed. This is how I explain them, so you can tell which one your deal needs before you ask for a quote.

What hard money means

“Hard money” is what investors call a short-term loan secured by the property and sized mainly on the property. The lender looks at what it is worth now, what it will be worth after any work, and what the whole project costs. Your personal income is not the starting point, the way it is on a home loan.

The name comes from the fact that the loan rests on the property, a hard asset, more than on you. It is a business-purpose loan, so it is for investment property only. Nobody on the loan may live in the property.

The fix and flip loan: the property needs work

When the property needs renovation, the loan has two parts. The money to buy is paid out at closing, and the renovation money is held back and released in draws as the work is finished and an inspector confirms it. You list the renovation line by line before closing.

Because the value comes from the work, the lender looks at what the property will be worth after the work as well as before it. Fix and flip loans finance properties that need a lot of work. The fix and flip loans page covers the product in full.

The bridge loan: the property needs little or no work

A bridge loan finances an investment property as it stands, for a short time, until the next step: a sale, a lease, or a long-term loan. Because the property needs little or no work, there is no renovation budget to hold back and release in draws.

Investors use it to buy before the long-term loan is ready, to carry a property while it is on the market, or to hold it while they find tenants. A bridge loan can be a purchase or a refinance. See bridge loans for how the product works.

What the three have in common

On all of them, you pay interest only each month, and the balance is repaid at the end of a term measured in months, when you sell or refinance. If you need more time, you can ask for an extension while the loan is current.

Both are business-purpose loans, so you usually borrow through a company, and the property is an investment, never your home. Terms depend on the strategy and on your record of completed projects. First-time investors are considered for purchases, on tighter terms.

The business-purpose label matters. The federal Truth in Lending rules exempt credit that is primarily for a business purpose (opens in a new tab), and their official interpretation (opens in a new tab) treats credit to buy, improve or maintain a rental the owner does not live in as business purpose. That is why the paperwork differs from a home loan.

How to choose

• Real renovation points to a fix and flip loan. A property that needs little or no work points to a bridge loan.
• On a flip, plan the cash for each stage before its draw. Draws reimburse work that is finished and inspected, and materials bought but not yet installed are not paid for.

If you renovate and decide to keep the property, a long-term rental loan based on the rent, such as a DSCR loan, can replace the short-term loan once it is rented. The fix and flip loan vs bridge loan page sets the two side by side, and our hard money loans page covers them in one place.

Frequently asked questions

Is a fix and flip loan a hard money loan?

Short-term investor loans to buy and renovate are often called hard money or private money loans, and ours do the same job: they are sized on the deal rather than on your tax returns. The difference is who you deal with: a licensed lender you can look up on NMLS Consumer Access, with terms in writing on a term sheet before you commit.

Is a bridge loan a hard money loan?

Investors often call short-term, property-based loans hard money. Ours do the same job, sized on the property rather than on your tax returns, with your terms in writing before you commit.

Does a bridge loan include renovation money?

A bridge loan is for a property that needs little or no work, so it is not built around a renovation budget. If the property needs real work, a fix and flip loan holds the renovation money back and releases it in draws after each stage is inspected.

Can I use a bridge loan to buy a home before I sell mine?

Not these. They are for investment property only, and nobody on the loan may live in the property. For a home you live in, talk to a licensed loan officer about the options.

A licensed loan officer can tell you which of these fits your deal, and you can start with a quote request.

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