Key takeaways
- Private money is financing from individuals or non-bank companies, usually secured by real estate.
- Lenders underwrite the property and the exit plan more than your income, so loans close in days, not months.
- Speed costs money: typical short-term private loans run about 9–13% interest plus 1–3 points.
- It works best for short-term, value-add or time-sensitive deals with a clear exit.
Private money, defined
"Private money" is any loan that comes from a private party instead of a bank, credit union or government-backed program. In real estate, it usually means a short-term loan secured by an investment property and recorded as a mortgage or deed of trust. If the borrower doesn't repay, the lender can foreclose on the collateral.
The lender can be a single individual, a family office, a specialized lending company (often called a "hard money" lender), a pooled mortgage fund, or an online platform that sells pieces of loans to many investors. What they have in common: they set their own credit rules, and they price for risk and speed rather than following conventional mortgage guidelines.
Who the private lenders are
- Individual private lenders. Friends, family, colleagues or high-net-worth investors who lend their own money (or retirement funds through a self-directed IRA). Terms are negotiated one-to-one.
- Hard money companies. Professional, often state-licensed lenders with published programs for flips, bridge loans, construction and rentals. Many are funded by investor capital, credit lines or loan sales to institutions.
- Private credit and mortgage funds. Pools of investor money managed by a sponsor who originates or buys loans.
- Marketplaces and platforms. Online lenders that originate loans and fund them by selling fractional notes to investors.
How a private money loan works
A typical investor loan follows five steps:
- Scenario: you share the property, price, rehab budget, after-repair value (ARV), your experience and your exit plan.
- Term sheet: the lender quotes leverage, rate, points, term and conditions, often within 24–48 hours.
- Valuation and diligence: an appraisal or broker price opinion, title search, insurance and entity documents.
- Closing: through a title or escrow company. The lender funds the purchase and holds back the rehab budget.
- Draws and payoff: rehab funds are released as work is completed and inspected, and the loan is repaid when you sell or refinance.
Most short-term private loans are interest-only with a balloon at maturity, which keeps monthly payments low while the property is being improved.
Typical terms in 2026
Published lender programs and major comparison guides in 2025–2026 show these common ranges. Your quote depends on experience, credit, leverage and location.
| Term | Typical range |
|---|---|
| Interest rate (flip / bridge) | ~8.5% to 13%, interest-only |
| Origination points | 1 to 3 (each point = 1% of the loan) |
| Leverage | 85–93% of cost, up to 100% of rehab, capped at 70–75% of ARV |
| Term | 6–24 months, with paid extensions |
| Minimum credit score | Commonly 600–680 |
| Time to close | About 5–15 days when title and valuation are ready |
Individual private lenders don't publish rate sheets; their terms are negotiated and can be cheaper or more expensive than institutional hard money depending on the relationship.
See what your deal could qualify for
Get an instant estimate of max loan, rate range and cash to close, then request matches from private lenders. Free, with no credit pull.
Get my estimate →When private money makes sense
- The property doesn't qualify for a bank loan, such as a distressed home with a damaged roof, no kitchen or code issues.
- Speed wins the deal: auctions, estate sales or sellers who want to close in 10 days.
- Your income is hard to document, but the deal itself is strong.
- You're scaling past conventional loan limits on the number of financed properties.
- Short holds: flips and bridge-to-refinance plans, where a higher rate for a few months beats a slow, rigid bank.
When it doesn't
- Long-term holds on stabilized rentals. A 30-year DSCR or conventional loan is usually far cheaper.
- Thin-margin deals, where points and interest wipe out the profit.
- Owner-occupied homes. Investor private loans are business-purpose only; consumer mortgages have different rules and protections.
- Any deal without a believable exit. If you can't sell or refinance, a balloon payment becomes a crisis.
Pros and cons
- Fast approvals and closings
- Asset-based underwriting
- Funds rehab and distressed property
- Flexible, negotiable structures
- Higher rates and points
- Short terms and balloon risk
- Extension and default fees
- Uneven quality and some bad actors
How to find and vet a private lender
Ask for written terms, references from recent borrowers, the lender's licensing status where required, and how they handle draws and extensions. Close only through a licensed title or escrow company. The single biggest red flag is a "lender" asking for a large upfront fee before issuing a term sheet or ordering a valuation. Our scam-avoidance guide has the full checklist.
Frequently asked questions
Is private money the same as hard money?
They overlap. "Hard money" usually means professional, asset-based lenders with published programs; "private money" often means individuals lending through relationships. See hard money vs. private money.
Can I use private money for my primary home?
Generally no. The programs described here are for non-owner-occupied investment property. Consumer mortgages are regulated differently.
How do I calculate the true cost?
Add interest for the expected hold, points and lender fees, then annualize. Our hard money cost calculator does this automatically.