Hard Money Loans vs Private Money
Source: Usually professional lending companies or funds that specialize in real estate lending.
Formality: Structured, with clear underwriting guidelines, contracts, and fees.
Purpose: Short-term real estate investing (fix-and-flip, bridge, construction, land).
Rates/Fees: Higher rates (8%–15%+) and points (1–5).
Process: Fast approvals (days, not months).
Collateral: Based heavily on property value and exit strategy.
Borrower Profile: Investors who need quick, asset-based funding.
- Private Money Loans
Source: Individuals — could be a friend, family member, business associate, or private investor.
Formality: Can be structured with legal docs, or sometimes very informal (“handshake deals”).
Purpose: Varies widely — can be real estate, business startup capital, bridge cash, etc.
Rates/Fees: Flexible — sometimes high like hard money, sometimes much lower (especially if it’s a friend/family investor).
Process: Extremely flexible; terms are whatever you negotiate.
Collateral: May or may not be secured by real estate (depends on agreement).
1. Purpose
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Common in real estate investing (fix-and-flips, bridge loans, land loans, construction projects).
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Used when fast funding is needed or when traditional financing (banks) isn’t an option.
2. Loan Terms
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Short-term: Typically 6 months – 3 years.
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Interest rates: Higher than banks, often 8% – 15%.
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Fees (points): 3%–8% of the loan amount (charged upfront).
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Payments: Usually interest-only during the loan term, with a balloon payment at the end.
3. Loan-to-Value (LTV)
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Based on the property value or after-repair value (ARV).
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Typically 60%–75% LTV.
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Some lenders fund rehab costs as long as the total loan stays under their LTV limit.
4. Collateral
The property itself secures the loan.
Lender may require a first lien position.
5. Borrower Requirements
Credit score is less important (some lenders don’t check at all).
Focus is on property value, deal strength, and exit strategy.
Often requires a down payment or equity contribution.
6. Speed
Approvals and funding are fast — sometimes within a few days (vs. weeks or months at a bank).
7. Exit Strategy
Hard money lenders always want to know how they’ll get paid back:
Sell (flip) the property.
Refinance into long-term conventional or DSCR loan.
🔹 Key Differences (Side-by-Side)
| Feature | Hard Money Loan | Private Money Loan |
|---|---|---|
| Lender | Professional lending companies/funds | Individuals (friends, family, private investors) |
| Formality | Structured, contracts, underwriting | Can be formal or informal |
| Use Case | Primarily real estate investment | Real estate, business, or personal needs |
| Rate/Fees | 8%–15% + points (higher cost) | Flexible — anywhere from low to very high |
| Collateral | Always secured by real estate | May or may not be secured |
| Speed | Very fast (days) | As fast as the individual agrees |
| Flexibility | Somewhat flexible, but still professional lending | Highly flexible, negotiated case by case |
