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  • Writer's pictureBlaise Brewer

Private Money vs Hard Money Lenders

Updated: Jan 13, 2022

When you’re looking for a fast and easy way to finance a real estate venture, private and hard money loans are a couple of common solutions. Both can potentially help you get involved with real estate investment.

But, which option should you choose? Don’t know which kind of loan you should settle for? Well, you are in the right place. We will help you understand which of the two loans suits you best.

While these two types of loans are very similar, there are a few key differences that you will need to be aware of. Here are the basics of hard money and private money and how they are different.

Hard Money and Private Money

  • Both of these options are outside of the traditional lending industry. You are not going to walk into a bank and secure this type of loan.

  • Both of these types of loans are provided by individuals that have excess money to lend. The individual is going to agree to lend you the money that you need for a certain amount of interest. You will then use the money to purchase real estate and begin making payments to the lender.

Private Money - refers to money that is put up by friends, family members, acquaintances, or business associates or just generally a source that is not necessarily in the business of being a lender.

  • Private lenders do not necessarily care about the details of the business arrangement. Once they lend you the money, you are free to use it as you see fit. The lender does not care what happens as long as you repay the debt.

  • When you work with private money lenders, you are going to be able to negotiate all of the terms of the loan. You will be able to tell them what interest rate you are willing to pay and how long you need the money. The lender is going to negotiate as well.

Hard Money - Hard money lenders are generally private, non-institutional companies who specialize in real estate loans.

  • Has a similar arrangement with private money except that hard money lenders are going to have a say over what happens to the money. These lenders are going to have a lot more control over this type of arrangement. They’re going to tell you what you can use the money for and when you have to pay it back. They’re going to specify what interest rate they are willing to lend at

  • Hard money lenders typically have certain deals that they will lend for and they’ll stay away from other types of investment

  • Hard money lenders are going to want to find out specific information about the real estate transaction. For example, certain hard money lenders may only want to invest in Fix and Flip projects. If you do not plan on investing in this type of deal, then you are not going to be able to gain access to the funds that the hard money lender has to offer.

Differences and Distinctions:

Here are the key differences between private lenders and hard money lenders.

Private Money LenderHard Money LenderAbility to Pay Relies on:

  • income and cash flow

  • debt to income ratio and/or project feasibility

Relies less on income and assets with a focus on collateral Credit Relies on:

  • credit history

  • borrower experience

  • debt-to-income ratio

  • financial condition

Relies on: The collateral as the primary source and not credit or debt-to-income ratio CollateralGenerally considers a backup with the ability to repay more importantConsiders the primary source of repayment if the borrower fails to payFlexibilityMore willing to negotiate terms and issues

  • More strict as collateral is what matters most

  • Less willing to negotiate with terms

TermsGenerally more favorable terms and more tailoredLess willing to tailor termsProperty TypePrefer properties with market demandMore flexible on property type and location


If you are the type of individual that likes to have control over everything, you may want to work with a private lender. However, if you need to turn over a deal quickly, obtaining a hard money loan is a definite advantage.

You might choose a private money loan if:

You want fewer restrictions and verifications

You are looking for shorter term options

You need flexible loan terms

You might choose a hard money loan if:

You require a fast closing and need the cash to do so

You have recovering credit or do not meet banks guidelines

You need to act on a lucrative opportunity right away


Private money and hard money loans have their similarities and differences. It is up to the borrower to decide which form of funding is best for their real estate investing goals.

Understanding the basics and key differences between private money and hard money loans can help you find the right option for your needs.


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