Key takeaways
- Hard money = professional, asset-based lenders with published programs: fast, predictable, priced for risk.
- Private money = relationship-based capital from individuals: flexible and negotiable, quality varies.
- Banks and DSCR lenders = cheapest money, slowest and strictest. Best for stabilized, long-term holds.
- Most experienced investors use all three at different stages of a deal.
The short version
People use "hard money" and "private money" interchangeably, and both are non-bank loans secured by real estate. The practical difference is who's lending and how standardized the process is. A hard money company runs a lending business with underwriting guidelines, loan officers, draw departments and rate sheets. A private money lender is often an individual putting their own savings or retirement funds into a deal they trust, usually because they trust you.
Side-by-side comparison
| Hard money lender | Individual private lender | Bank / DSCR lender | |
|---|---|---|---|
| Source of funds | Company capital, credit lines, investor funds, loan sales | Personal savings, SDIRA, family office | Deposits, secondary market |
| Typical rate | ~8.5–13% + 1–3 points | Negotiated; often 8–15% + 0–3 points | DSCR ~5.75–8.5%; banks lower |
| Speed | 5–15 days | Days, if the lender is ready | 21–45+ days |
| Leverage | 85–93% LTC, rehab funded | Whatever is agreed; often 65–80% LTV | 70–80% LTV; little or no rehab |
| Documentation | Moderate: deal, entity, experience | Light to moderate | Heavy: income, assets, credit, appraisal |
| Flexibility | Within program boxes | Very high | Low |
| Draw process | Formal inspections and draw fees | Informal or none | Rarely funds rehab |
| Licensing | Often state-licensed or exempt for business-purpose loans | Varies; occasional lenders may be exempt | Federally or state regulated |
When to choose hard money
Choose a hard money lender when you need certainty of execution: a defined process, a closing date you can promise a seller, and rehab funding through draws. Hard money also scales: once you have a track record, many lenders tier your pricing down and raise your leverage. The trade-off is cost, and the program boxes. If your deal falls outside them (unusual property, rural location, very small loan), you may be declined.
When to choose an individual private lender
Individual private lenders shine when flexibility matters more than process: funding a down payment gap, a creative seller-finance structure, an unusual property, or a quick transactional close. Terms are negotiable; some will lend in second position or take a share of profits instead of points. The trade-offs: relationships take time to build, capacity is limited, and amateurs may lack proper documents, insurance and servicing, which can create problems for both sides.
When to choose a bank or DSCR loan
Once a property is stabilized (renovated, rented and producing income), cheap long-term debt usually wins. DSCR loans qualify you on the property's rent instead of your tax returns; conventional and portfolio bank loans may be cheaper still if you qualify. That's why the classic sequence is hard or private money in, long-term money out. Read DSCR loans explained and BRRRR financing.
Compare costs before you choose
A 12% loan for 4 months can cost less in dollars than a 9% loan with 3 points held for a year. Run both scenarios.
Open the loan cost calculator →A simple decision framework
- Is the property financeable by a bank today? If no (distressed or uninhabitable), use hard or private money.
- How long will you hold before selling or refinancing? Under 18 months, short-term money is fine. Longer, plan the refinance now.
- How fast must you close? Under 2 weeks rules out most banks.
- Is the deal unusual? If so, an individual private lender may be your only yes.
- What's the all-in cost versus the profit? If financing eats more than about a third of projected profit, renegotiate or pass.
Negotiation tips that actually work
- Present a clean package: scope of work, comps, budget, timeline and exit. Lenders price uncertainty.
- Ask about pricing tiers. Many lenders reprice after 3 or 5 completed deals.
- Trade rate for points depending on your hold. Short hold: pay a slightly higher rate and fewer points. Long hold: the reverse.
- Negotiate extension terms before closing, not when you're late.
- Ask whether interest is charged on the full loan or only on funds disbursed ("Dutch" vs. "non-Dutch" interest).