Today we are going to discuss hard money vs private money. As a real estate investor, you’ve probably heard terms like hard money and private money thrown around. While they may sound similar, these two types of loans have important differences that can impact your deals. Therefore, by knowing which one is right for you can save time, money, as well as stress.
What Is Hard Money?
Hard money loans are usually offered by local institutions or individuals. To clarify, these loans focus on the property’s value as opposed to your credit score or experience. Here’s how they work:
- Asset-Based Lending: Hard money lenders care more about the deal rather than your financial history.
- Flexibility: Hard money loans offer flexible terms, therefore making them ideal for unique deals like cross-collateralization or projects needing 100% financing.
- Quick Approval: If you need fast funding in order to close a deal, hard money loans are your best bet. Approval can happen in days, not weeks.
Example
You find a great fix-and-flip project but need 100% financing: A hard money lender might offer that if the deal makes sense. They focus on whether the property has enough value, rather than your credit score.
What Is Private Money?
Private money loans usually come from larger lenders backed by Wall Street funds. These loans have stricter requirements, however they often offer lower rates for those who qualify. Here’s what you’ll find:
- Stricter Criteria: Private money lenders look at your experience, credit score, as well as liquidity.
- Lower Rates for Experienced Borrowers: If you’ve flipped several properties or have solid financials, you may get better rates.
- Fixed Guidelines: Private money lenders have specific loan programs you must fit into, such as 90% purchase financing and 100% rehab costs.
Example
You’re an experienced investor looking to fix and flip a property. A private money lender could offer better rates if you have a high credit score as well as some money to put down.
Key Differences Between Hard Money and Private Money
| Feature |
Hard Money |
Private Money |
| Focus |
Property’s value and deal strength |
Investor’s credit, experience, and liquidity |
| Flexibility |
Highly flexible, deal-specific |
Strict guidelines, fits into specific boxes |
| Approval Time |
Fast approval, often within days |
Longer approval process |
| Down Payment |
Can offer 100% financing for strong deals |
Typically requires 10% or more down |
| Best For |
New investors, quick closings, unique deals |
Experienced investors with time to qualify |
When Should You Use Hard Money?
Hard money loans are perfect if you:
- Need fast funding for a time-sensitive deal
- Have little experience but found a solid investment
- Require creative financing, such as cross-collateralization
- Are dealing with smaller or unique properties
When Should You Use Private Money?
Private money loans might be your best option if you:
- Have experience with flips or rental properties
- Have a strong credit score and liquidity
- Want lower interest rates
- Can wait longer for approval
What’s Best for You?
At the end of the day, hard money and private money both have their place in real estate investing. However, if you need flexibility, quick approvals, or 100% financing, hard money is the way to go. On the other hand, if you have a solid track record and can fit into stricter guidelines, private money may save you some costs.
Need Help Finding the Right Loan?
At Hard Money Mike, we offer tools like our Loan Cost Optimizer to help you compare hard money and private money rates. Whether you’re looking for 100% financing or need a specific loan for your fix-and-flip, we’re here to help you get the deal done.
If you have questions or need guidance, leave a comment below or contact us for more details. We’re here to help you find the best option for your next project!
Watch our most recent video to find out more about Hard Money vs Private Money.
