What is a Hard Money Loan for Land? Complete Guide for Land Investors
- Eric Scharaga
- Jun 19, 2023
- 9 min read
Updated: Nov 24, 2025
If you've ever tried to get a bank loan for vacant land, you know how frustrating it is. Banks almost always say no to raw land purchases. That's where hard money loans come in - but what exactly are they, and are they the right choice for your land investment?
In this comprehensive guide, I'll explain everything you need to know about hard money loans for land, including how they work, what they cost, when to use them, and what alternatives might work better for your situation.
What is a Hard Money Loan?
A hard money loan is a short-term loan secured by real estate and funded by private individuals or companies rather than traditional banks. The term "hard money" refers to the hard asset (real estate) that backs the loan.
Key Characteristics of Hard Money Loans:
Asset-Based Lending
Approval based on property value, not borrower credit
Fast approvals (often 3-7 days)
Minimal documentation required
Credit score less important than the deal itself
Short-Term Financing
Typical terms: 6-24 months
Designed for fix-and-flip or quick resale
Not meant for long-term holds
Balloon payment due at maturity
Higher Costs
Interest rates: 10-18% typically
Points at closing: 2-5 points common
Higher fees than traditional loans
Trade-off for speed and approval certainty
How Do Hard Money Loans Work for Vacant Land?
While hard money loans are common for houses and commercial properties, vacant land hard money loans are much harder to find. Here's why and how they work when available:
The Vacant Land Challenge
Most hard money lenders avoid vacant land because:
No cash flow - Land doesn't generate rental income
Harder to value - No comparable sales often
Slower to sell - Takes longer than houses if borrower defaults
Higher risk - Less liquid than improved properties
Result: Many hard money lenders simply won't touch vacant land, and those who do charge premium rates.
Typical Hard Money Land Loan Structure
When you can find hard money for land, here's what to expect:
Loan Amount:
50-70% LTV (Loan-to-Value) typical
Means you need 30-50% down payment
Based on current "as-is" value, not future potential
Interest Rates:
12-18% for vacant land (higher than improved properties)
Often interest-only payments
Rates reflect higher risk of land lending
Points and Fees:
3-5 points at closing (3-5% of loan amount)
Example: $100K loan = $3,000-5,000 in points
Origination fees, underwriting fees, processing fees
Can add $5,000-10,000 to closing costs
Term:
12-24 months typical
Must have clear exit strategy
Extensions possible but expensive (additional points)
Requirements:
Clear title
Detailed property information
Exit strategy (how you'll pay off loan)
Personal guarantee usually required
Example: Hard Money Loan for Land Purchase
Let's walk through a real scenario:
The Deal:
Property: 10 acres vacant land
Purchase price: $100,000
After-repair value (subdivided): $200,000
Hard Money Loan Terms:
Loan amount: $65,000 (65% LTV)
Down payment required: $35,000
Interest rate: 14%
Points: 4 points ($2,600)
Term: 18 months
Monthly payment: $758 (interest-only)
Total Costs:
Down payment: $35,000
Points at closing: $2,600
Monthly interest (18 months): $13,644
Total cost to borrow $65,000: $16,244
Exit Strategy:
Subdivide into 5 lots
Sell lots for $40,000 each = $200,000 gross
Pay off hard money loan at month 12
Net profit after loan costs: ~$80,000
This works if: You can execute the subdivision and sales quickly. If the project takes 24+ months, costs eat into profits significantly.
When Should You Use a Hard Money Loan for Land?
Hard money loans for land make sense in specific situations:
✅ Good Reasons to Use Hard Money for Land:
1. Speed is Critical
Competitive deal where fastest offer wins
Seller needs to close in 7-14 days
Traditional financing would take too long
2. Credit Issues
Recent bankruptcy or foreclosure
Low credit score
Can't qualify for traditional financing
3. Clear Quick Exit
Planning to flip quickly (under 12 months)
Have buyer lined up
Subdividing and selling immediately
4. Bridge Financing
Waiting for long-term financing to close
Need temporary capital
Refinancing in 6-12 months
5. No Other Options
Banks won't touch the property
Property doesn't meet conventional criteria
Unique situation requiring private capital
❌ Bad Reasons to Use Hard Money for Land:
1. Long-Term Hold
Planning to hold land for 3+ years
No immediate exit strategy
Better options available for long-term
2. Marginal Deal
Thin profit margins
High costs eat all profit
Only works with traditional financing rates
3. Speculative Purchase
Hoping land appreciates
No clear development plan
No defined exit timeline
4. First-Time Investor
No experience with land deals
Underestimating timeline
Risk of expensive extensions
Hard Money vs Private Money Lenders: What's the Difference?
People often confuse "hard money" with "private money" - but there are important differences:
Traditional Hard Money Lenders
Characteristics:
Institutional or semi-institutional
Strict formulas (LTV, rates, points)
Process-driven
Less flexible on terms
Higher fees
Best for:
Standard fix-and-flip deals
Properties they understand well
Borrowers who fit their box
Private Money Lenders (Like Damen Capital)
Characteristics:
Direct lenders using own capital
More flexible underwriting
Relationship-based
Can structure creative terms
Often lower fees than hard money
Best for:
Vacant land (niche expertise)
Unique situations
Experienced investors
Creative structures
The True Cost of Hard Money for Land
Let's compare the actual costs using real numbers:
Scenario: $100,000 Land Purchase
Option A: Hard Money Loan
Loan amount: $70,000 (need $30K down)
Points: 4% = $2,800
Interest: 16% = $11,200/year
Term: 18 months
Monthly payment: $933
Total cost for 18 months: $16,794
Total out of pocket: $46,794
Option B: Private Land Lender (Damen Capital)
Loan amount: $80,000 (need $20K down)
Points: $0
Interest: 13% = $10,400/year
Exit fee: 3% = $2,400
Term: 24 months
Monthly payment: $867
Total cost for 18 months: $14,201
Total out of pocket: $34,201
Savings with private lender: $12,593 over 18 months
Plus you needed $10,000 less down payment, freeing capital for other deals.
Alternatives to Hard Money Loans for Land
If you're looking at hard money for land, consider these alternatives:
Alternative #1: Private Land Lenders
Damen Capital and similar private lenders specialize in vacant land:
Advantages: ✓ No points at closing ✓ Lower rates than hard money ✓ Longer terms (24+ months) ✓ Up to 100% LTV with cross-collateralization ✓ Understand land as an asset class
When to use:
Any land investment situation
Need more than 12 months
Want to preserve capital
Alternative #2: Seller Financing
Get the seller to finance your purchase:
Advantages: ✓ Often lowest cost option ✓ Flexible terms ✓ No bank approval needed ✓ Creative structures possible
When to use:
Seller owns property free and clear
Motivated seller
Can offer quick closing
Alternative #3: Cross-Collateralization
Use equity in other properties as collateral:
Advantages: ✓ Get 100% financing on new purchases ✓ No cash out of pocket ✓ Scale faster ✓ Keep cash for other investments
When to use:
You own other properties with equity
Want to maximize leverage
Building a portfolio
Alternative #4: Portfolio Lenders
Small local banks sometimes lend on land:
Advantages: ✓ Lower rates (8-12%) ✓ Longer terms ✓ Relationship-based
Disadvantages: ❌ Slow (60-90 days) ❌ Strict requirements ❌ Often require existing relationship
When to use:
Have time to wait
Strong credit and financials
Not time-sensitive
Alternative #5: Line of Credit
HELOC or business line of credit:
Advantages: ✓ Lower rates ✓ Flexible access to capital ✓ Reusable
Disadvantages: ❌ Need existing equity or business ❌ Personal liability ❌ May not be enough capital
When to use:
Smaller deals
Bridge financing
Have existing equity
Red Flags: When to Avoid a Hard Money Loan
Be cautious if you see these warning signs:
🚩 Excessive Fees
Points over 5%
Junk fees exceeding $5,000
Hidden costs not disclosed upfront
🚩 Predatory Terms
Default interest rates over 20%
Unreasonable extension fees
Penalties that don't make sense
🚩 Pressure Tactics
"This rate only good today"
Rushing you to sign
Won't explain terms clearly
🚩 Lack of Transparency
Won't provide written terms
Vague about total costs
No clear payoff amount
🚩 Unrealistic Promises
"Guaranteed approval"
"No property inspection needed"
"Approve anyone regardless of situation"
Rule of thumb: If something feels wrong, walk away. Legitimate lenders are transparent about costs and terms.
How to Qualify for a Hard Money Loan for Land
If hard money is your best option, here's how to increase approval odds:
What Hard Money Lenders Look For:
1. Strong Deal
Clear value proposition
Reasonable purchase price vs. value
Obvious exit strategy
2. Experience
Prior land deals completed
Track record of success
Credible plan
3. Solid Exit Strategy
Specific timeline
Realistic sales plan
Market support for approach
4. Adequate Equity
30-50% down payment ready
Reserves for contingencies
Proof of capital
5. Clear Title
No title issues
Legal access
Buildable/usable land
Documents Needed:
Property address and details
Purchase contract (if applicable)
Property tax bill
Comparable sales
Exit strategy explanation
Personal financial statement
Proof of down payment funds
Questions to Ask Before Getting Hard Money for Land
Before committing to a hard money loan, ask these critical questions:
About Costs:
What is the total interest rate?
How many points are charged at closing?
What are ALL fees at closing?
What's the total cost to borrow for [X] months?
Are there prepayment penalties?
About Terms:
What is the exact term length?
What happens if I need an extension?
How much does an extension cost?
Are payments interest-only or amortizing?
What triggers default?
About the Lender:
How many land deals have you funded?
Can you provide references?
Who makes the final approval decision?
How long to close after approval?
Do you fund from your own capital or broker deals?
If the lender can't answer these clearly, find a different lender.
Why Land Investors Choose Damen Capital Over Hard Money
We created Damen Capital specifically because traditional hard money doesn't work well for land investors. Here's what we do differently:
No Points at Closing
Hard money: 3-5 points ($3,000-5,000 on $100K loan)
Damen Capital: $0 in points
Save thousands at closing
Lower Rates
Hard money: 14-18% for land
Damen Capital: 13-15%
Save on monthly payments
Minimal Closing Costs
Hard money: $5,000-10,000 in fees
Damen Capital: $600 total closing costs
Transparent, simple pricing
Longer Terms
Hard money: 12-18 months
Damen Capital: 24 months, extendable
Less pressure, more flexibility
Higher LTV Available
Hard money: 50-70% LTV (need 30-50% down)
Damen Capital: 65-100% LTV with cross-collateralization
Preserve your capital
Land Expertise
Hard money: Treats land like risky houses
Damen Capital: Specializes exclusively in vacant land
We understand your business model
Frequently Asked Questions About Hard Money for Land
Q: Can I get a hard money loan with bad credit?
A: Yes, hard money lenders focus more on the property value and deal structure than your credit score. However, extremely poor credit or recent bankruptcies may require higher down payments.
Q: How fast can I close a hard money land loan?
A: Typically 5-14 days once approved. Some lenders can close in 3-5 days for simple deals. Much faster than banks (60-90 days).
Q: What happens if I can't pay off the hard money loan on time?
A: You'll need to either refinance, sell the property, or request an extension. Extensions typically cost 1-2 additional points plus continued interest. Failing to pay can result in foreclosure.
Q: Is hard money the same as a loan shark?
A: No. Legitimate hard money lenders are legal, licensed businesses. However, rates are higher than banks, so understand all costs before proceeding.
Q: Can I get 100% hard money financing for land?
A: Very rare. Most hard money lenders require 30-50% down for land. Some private lenders (like Damen Capital) offer up to 100% LTV with cross-collateralization, but traditional hard money typically doesn't.
Q: Do hard money lenders require appraisals for land?
A: Depends on the lender. Many use broker price opinions (BPOs) or their own valuations rather than formal appraisals to save time and cost.
Q: What's better for land: hard money or private money?
A: Private money lenders who specialize in land (like Damen Capital) typically offer better terms than traditional hard money - lower rates, no points, longer terms, and higher LTV. Hard money makes sense mainly when you can't find a private lender.
The Bottom Line on Hard Money Loans for Land
Hard money loans can work for vacant land purchases, but they're expensive and hard to find. Most traditional hard money lenders avoid land entirely, and those who do it charge premium rates with high points.
Key Takeaways:
✓ Hard money for land costs 14-18% interest plus 3-5 points✓ Typical LTV is only 50-70% (need 30-50% down)✓ Best for quick flips under 12 months✓ Total costs can exceed $15,000 on a $100K loan✓ Private land lenders often offer better terms
Before getting hard money:
Check if private land lenders will fund your deal (often better terms)
Consider seller financing (often lowest cost)
Explore cross-collateralization for 100% financing
Calculate total costs over your hold period
Have a clear, realistic exit strategy
If you need fast land financing with better terms than traditional hard money, we can help.
Ready to Finance Your Land Purchase?
Damen Capital offers better terms than traditional hard money:
Get approved in 48 hours, close in 7 days.
Call or Text: 302-526-0200Email: eric@damencapital.com
