Private money loans are good for both short- and long-term investors in need of quick financing to compete with all-cash buyers. Investors sometimes use a private money loan, also known as a hard money loan, to purchase a property before refinancing to a long-term conventional mortgage. Investors who don’t qualify for conventional mortgages also may seek out private money loans, typically when they’re adding properties to an existing portfolio with over four existing properties.
If you’re looking for a private money lender to finance your next real estate investment, LendingHome offers competitive rates for prime borrowers with no prepayment penalties. You can get funded in as little as 5 days. Prequalifying online takes just a few minutes.
Private Money Lender Rates, Terms & Qualifications
Private money lenders typically loan an amount equal to a percentage of a property’s loan-to-value (LTV) or its after-repair-value (ARV). LTV is based on a property in good condition, and ARV is for a property in poor condition and in need of repairs or rehabilitation.
Maximum Loan Amount
90% LTV; 80% of ARV
Minimum Down Payment
10% LTV; 20% ARV
Typical Loan Term
One to three years
Where to Apply
Private Money Lender Rates, Terms, Fees & Timing
Private money loans are typically interest-only. This means that private money borrowers pay monthly interest throughout the term of the loan and pay the balance at the end of the loan. Some lenders charge prepayment penalties if you pay off the loan before the due date. While the interest rates on a private money loan might be higher when compared to a conventional mortgage, the monthly payments might be lower.
7% to 12%
Lender Fees (Points)
1.5% to 10% of amount borrowed
2% to 5% of amount borrowed
$300 to $500
As soon as three minutes
As few as 10 days
Private Money Lender Terms & Qualifications
A national hard money lender will want a minimum credit score of 550, but the best interest rates go to borrowers with higher FICO scores. Depending on the real estate investment project, some hard money lenders will look at the project’s potential more closely than the borrower’s personal financial statement.
Minimum Credit Score
Curriculum vitae, resume, or proof of past projects, typically one to three years
Will need contractor bids and scope of work from experienced contractors
Who Private Money Lenders Are Right For
Private money lenders are predominantly right for short-term fix-and-flippers who want to compete with the short timeline of an all-cash buyer. However, private loan lenders are also right for long-term investors who want to rehab a rental property before refinancing into a permanent mortgage or seasoning a property before refinancing.
Long-term investors who can’t qualify for a conventional mortgage, 203(k) loan, or HomeStyle Renovation mortgage, but plan on refinancing once they meet qualifications also use private money loans.
Where to Find Private Money Loans
You could ask friends and family for a loan to fund your real estate investment project or find accredited investors. However, if you don’t have a track record of completing successful real estate investing projects and a real estate investing network, getting investor capital is tricky. If you structure a solid deal and can show investors their potential return on investment (ROI), you may find one willing to fund your project, but it’s challenging.
If you don’t have friends and family who can invest or can’t get investor funding, you can apply for a loan through an online private money lender such as LendingHome or Patch of Land. You can also shop on a site like LendingTree, which will match you to several hard money lenders that offer loans to meet your needs.
To get funded with a private money loan, borrowers will need to submit additional documentation and verification, including proof of experience or licensed contractor bids. Once underwriters verify all documentation, the loan gets approved, and it moves to closing where funds are distributed, and the borrower takes possession of the property.
Additional documents lenders may require prior to closing include:
- Purchase and sales contract
- List of past projects completed by the investor
- Licensed contractor bids
- Scope of rehab work
- Property appraisals
- Proof of down payment funds
- Prepaid fees and costs
Pros and Cons of Private Money Loans
Private money loans are advantageous for investors who want to quickly purchase and fix up a distressed or damaged investment property. The quick preapproval and fast funding time are two of the main advantages. However, there are disadvantages, including higher interest rates and shorter loan terms.
Lower minimum FICO score of 550
Shorter repayment terms between one to three years
Online prequalification in as little as three minutes
Lender fees up to 10% of the amount borrowed
Funding in as little as 10 to 15 days
Higher interest rates than a standard mortgage, between 7% and 12%
Ability to fund difficult projects traditional lenders won’t touch
Private money lenders typically offer loans that are secured by a real estate asset. These loans are used to purchase a house, condo, or multifamily building. Private money lenders are also known as hard money lenders who issue short-term real estate loans used to purchase and renovate an investment property. Hard money loans are good for both short-term fix-and-flip investors as well as long-term buy-and-hold investors.