What a Hard Money Lender Actually Looks At
You found a property, you ran the numbers twice, and now you need money fast enough to beat the next offer. A bank will take six weeks and ask for two years of tax returns. You don't have six weeks. You're trying to figure out what a hard money lender will actually check before they hand you a term sheet.
Here's the short answer. A hard money lender looks at three things, roughly in this order: the deal itself (purchase price against after repair value), your exit plan (how you get them paid back), and your track record and cash in the bank. Your credit score matters less than you think. Your W-2 doesn't matter at all. The property is the collateral, so the property does most of the talking.
Now let's break down what that means in practice.
The Deal Comes Before You Do
Hard money lenders aren't underwriting you the way a mortgage broker does. They're underwriting the asset. Two numbers drive almost every decision: loan to value (LTV) and after repair value (ARV).
LTV is the loan amount divided by the current value of the property. Most hard money lenders cap this around 65% to 75% of purchase price, sometimes up to 90% if you're also financing rehab costs.
ARV is what the property will be worth once you've done the work. Lenders typically cap total lending, purchase plus rehab, at 65% to 75% of that ARV number. This is the number that actually controls how much money you get.
If a lender tells you they lend "up to 90% LTV," ask 90% of what, because purchase price and ARV give very different answers.
Why Lenders Care More About the House Than You
This isn't generosity. It's risk management. If you disappear or the project stalls, the lender's only recourse is the property. They need to be confident that if they had to foreclose and sell it themselves, they'd get their money back plus the cost of the trouble.
That's why a lender will send an appraiser or do their own broker price opinion instead of trusting your comps. That's why they'll ask a contractor to bid the rehab scope instead of taking your number. They aren't being difficult. They're pricing the same risk you should be pricing before you ever call them.
A Worked Example
Say you're under contract on a single family house for $180,000. Comparable sales after renovation put the ARV at $260,000. Your contractor bid comes in at $40,000 for the rehab.
A lender working off 70% of ARV caps total lending at $182,000 (0.70 x $260,000). That number needs to cover both the purchase and the rehab. Purchase plus rehab here is $220,000. The lender's cap of $182,000 falls short by $38,000, which means you're bringing that gap in cash, roughly 17% of the total project cost.
Now flip the scenario. Same house, but you negotiated the purchase down to $150,000 because the seller needed to close fast. Purchase plus rehab is now $190,000. The lender's 70% of ARV cap is still $182,000. You're now only short $8,000 out of pocket. Same house, same ARV, same rehab budget, but the purchase price you negotiated changed your cash requirement by $30,000.
This is why experienced investors obsess over purchase price more than almost anything else. It isn't just profit margin. It's what determines whether the deal is financeable at all.
Does a Hard Money Lender Check Credit?
Most will pull it, but not the way a bank does. A 580 score won't kill a deal with strong equity and a clear exit. A 750 score won't save a deal where the ARV doesn't support the loan amount. Credit here is mostly a background check for red flags like open judgments, recent bankruptcies, or a pattern of foreclosures, not a rate-setting tool the way it is for a conventional mortgage.
Some lenders will nudge your rate a point or so based on credit tier. None of them are going to decline a well-margined deal over a 620 score.
What "Exit Strategy" Actually Means to a Lender
Hard money is short term, usually six to eighteen months. The lender's real question is: how does this loan actually get paid off, and does the timeline match reality?
If you're flipping, they want to see your renovation timeline against your holding costs. A six-month loan on a project that realistically takes nine months is a problem you're creating for yourself, not just them.
If you're planning to refinance into a long-term loan (a BRRRR strategy), they'll want to know you can actually qualify for that refinance once the work is done. Some lenders will ask about your relationship with a DSCR lender or bank before they'll close.
If your answer to "how do you pay this back" is "I'll figure it out," that's the fastest way to get declined or pushed to a worse rate.
What Experience and Liquidity Signal
If this is your first deal, expect to put more money down, expect a higher rate, and expect closer oversight during draws. Lenders aren't punishing you. They're pricing for the fact that first-time investors are statistically more likely to run over budget or over schedule.
Liquidity matters separately from the loan itself. Lenders want to see that you have reserves beyond the down payment, usually enough to cover a few months of interest payments and unexpected overages. A borrower who's tapped out at closing is a borrower who can't absorb a $6,000 surprise when the inspector finds knob and tube wiring behind a wall.
What People Get Wrong
The most common mistake is treating the ARV as a number you can negotiate up until it works. Lenders don't accept your comps at face value, and inflating a rehab scope to justify a higher ARV usually surfaces the moment their own appraiser walks the property. The second mistake is not having a rehab budget with actual line items. "About $40,000" is not a scope of work. A lender wants to see a contractor bid or a detailed budget, because that's what tells them whether your number is real.
The Honest Limitation Here
None of this is universal. Hard money lenders are not standardized the way conventional mortgage underwriting is. LTV caps, rate structures, draw schedules, and how much they weigh experience all vary by lender, and some regional or relationship-based lenders will bend rules that a larger fund won't touch. The framework above describes how most lenders think, not a rule every lender follows. Before you count on a specific number, ask the lender directly how they calculate their cap and get it in writing.
Once you know how a lender is going to size up your deal, the next problem is finding deals that actually clear that bar before someone else does. That's what Deal Machine is built for, if you want to see how it works, it's at readmoneydecoded.com/deal-machine.