When it comes to financing real estate investments, choosing the right type of loan can make or break a deal. Two of the most common options investors consider are hard money loans and conventional loans. While both can get you to the closing table, they serve very different purposes—and come with different costs and benefits.
What is a Hard Money Loan?
Hard money loans are short-term loans funded by private investors or companies. They’re primarily asset-based, meaning the decision is based on the property’s value—not your credit score or income.
Example:
You find a fixer-upper listed at $150,000 that could be worth $250,000 after $40,000 in renovations. A hard money lender might finance 70% of the after-repair value (ARV), giving you $175,000—enough to purchase and rehab the property.
What is a Conventional Loan?
Conventional loans are long-term loans offered by traditional banks or mortgage lenders, typically with lower interest rates and stricter requirements. These loans are ideal for rental properties or long-term holds.
Example:
You want to purchase a $300,000 turnkey rental. With strong credit and income documentation, a bank might approve a 30-year fixed-rate loan at a low interest rate, requiring 20–25% down.
Pros & Cons
| Feature | Hard Money Loans | Conventional Loans |
| Speed | Fast (funding in days) | Slower (30–45 days) |
| Requirements | Flexible (asset-based) | Strict (credit, income, DTI) |
| Interest Rates | High (8–15%+) | Low (4–7%) |
| Terms | Short-term (6–18 months) | Long-term (15–30 years) |
| Down Payment | Often 10–30% of ARV | Typically 20–25% of purchase price |
| Best For | Flips, distressed properties | Rentals, long-term holds |
When to Use Each
- Use Hard Money When:
You’re flipping a house, buying at auction, or need to close fast with minimal paperwork. Think speed over cost. - Use Conventional Loans When:
You’re building a long-term rental portfolio and qualify based on income, credit, and assets. Think stability and affordability.
Final Thoughts
The right financing tool depends on your investment strategy. Hard money loans are great for fast, flexible funding—especially for short-term projects. Conventional loans, while slower, offer the best rates for long-term investments.
As an investor, having both options in your toolkit is key. Know your strategy, crunch the numbers, and choose the loan that aligns with your goals.
Ready to fund your next investment?
Sundance Capital Group can help you choose the right loan for your project—whether it’s a quick flip or a buy-and-hold rental.
👉 Visit us at www.sundancecapitalgroup.com to get started or schedule a consultation today.