A report from the Urban Institute has drawn attention to the rapidly growing role that ‘hard money’ and residential transition lending is playing in the housing supply in the US.

The Evolution of Residential Transition Lending: From Hard Money to Housing Supply?, released in April 2026, argues that residential transition lending (RTL) is no longer a fringe financing mechanism but a significant contributor to housing production.

The report, supported by the Housing Finance Innovation Forum, concluded that RTL has become an important source of capital for small-scale residential construction and rehabilitation.

It noted that while residential transition loans (RTLs) are still short-term and asset-based, they have become increasingly institutionalized, transparent and scalable.

And it identified RTLs as primarily financing infill development and the construction of ‘missing middle’ housing in existing neighborhoods and first-ring suburbs close to existing infrastructure.

This includes duplexes, triplexes and small multi-family properties that have remained largely ignored by institutional capital.

What is Residential Transition Lending?

In many ways, Residential Transition Lending represents the evolution of hard money.

Structured and standardized loans are offered by institution lenders and large debt funds designed specifically for ‘fix-and-flip’ strategies.

They are a modern, institutionalized version of asset-based short-term property lending and aimed more towards professional investors rather than distressed borrowers.

It’s scaled-up hard money rebranded for institutional capital.

Where the dollars are flowing

The report drew on market data and undertook extensive interviews with industry figures.

It estimated there was more than $85 billion in RTL originations in 2025 alone.

This included:

• >$35 billion dedicated to the rehabilitation of existing homes

• >$25 billion dedicated to 1-4 family ground-up constructions

These numbers position RTL as a supplemental, market-driven mechanism helping to address gaps overlooked by traditional bank lending and large-scale developers.

This was underscored by the comparison of outstanding single-family construction loans by EOY 2025:

Banking sector – $91 billion 

RTLs – $30 billion

The report also highlighted that RTLs were weighted heavily towards affordable housing units in established communities where incremental development is often most needed.

Essentially, Residential Transition Lending is enabling small builders, who lack access to traditional capital, to grow the housing supply one project at a time.

What the report uncovered

The Urban Institute report made a number of other telling observations.

Active borrowers

It drew on borrower-level data from Forecasa to validate the long-held belief that more active borrowers, defined as those completing at least four projects annually, continue to utilize RTLs, despite having the capacity to access lower-cost bank capital.

It attributed this preference for RTLs to the following features:

• asset-based underwriting

• higher leverage

• shorter execution timelines

• greater flexibility 

It reinforced the understanding that residential transition lending was a deliberate choice for a vast range of borrowers.

Maturity

The report observed that residential transition lending has matured significantly.

It is no longer seen as just ‘hard money’ but rather a more institutionalized market with diverse capital sources, standardized practices and growing securitization features.

What was once a fragmented, local lending market is now attracting capital from:

• insurance companies

• private equity firms

• real estate investment trusts (REITs)

This influx of capital led to the emergence of rated securitizations in 2024, improving liquidity and lowering funding costs.

These growing maturity, along with the growth in whole-loan demand, have combined to push average RTL interest rates downwards, making them even more attractive.

According to Lightning Docs, the median interest rate for RTL originations fell below 10 per cent in February, 2026.

This is significant because it:

• further expands the scale of lending

• standardises underwriting processes

• improves transparency and risk management

The result is that RTL is beginning to resemble a mainstream asset class rather than an alternative niche.

Local construction

The report also found that despite its growth, residential transition lending has retained a distinct local orientation. 

It noted that 83 per cent of private lenders work with fewer than 10 unique borrowers who typically complete only one or two projects every few years.

It attributes this to both operational realities and borrower demand—the precise reasons why RTLs are likely to resist banking’s evolutionary path of consolidation and standardization.

The report also emphasized that the construction-focused nature of residential transition lending demands localized expertise.

It requires lenders to develop intimate knowledge of neighborhood conditions, construction costs and timelines, contractor reliability and the feasibility of exit strategies tied to rental or sale outcomes.

This encourages the fostering of strong relationships with borrowers and acts as a potential stabilizing feature, reducing the likelihood of systemic excesses seen in past credit booms.

Limitations and risks

While overwhelmingly positive, the report stops short of portraying RTLs as infallible.

Key limitations include:

• their relatively small share of total housing finance

• their concentration in specific project types and geographies

• they do not directly address affordability constraints for low-income households

It added that as institutional capital flows into the sector, there is a risk that competitive pressures could erode underwriting standards over time, although it anticipates that current structures may mitigate this.

Interested in private credit?

There is little doubt hard money has undergone a quiet transformation and has evolved into a structured, increasingly institutionalized market segment that is making a real impact on housing supply.

While no private mortgage income fund index exists to compare RTLs year-on-year with REITs, evidence from a range of individual funds consistently points to less volatility, greater certainty and overall better performance.

That is because private mortgage income funds tend to exhibit income-driven returns rather than being subjected to market fluctuations.

But critically, their performance is heavily dependent on credit underwriting, loan structures and interest-rate environments.

Central (Central Mortgage Income Fund - CMIF) is a California-focused private credit fund that originates and acquires real estate-backed loans giving investors consistent, risk-adjusted returns from short-term, senior-secured loans.

We put your capital to work by aligning you with targeted borrowers utilising carefully underwritten short-duration loans with first-position liens and conservative loan-to-value ratios (average 65%).

To learn more about how you can get involved, contact Central today.

This analysis is based on comprehensive market data and industry research. Past performance does not guarantee future results. Investors should conduct their own due diligence and consult with qualified advisors before making investment decisions.