Hard money vs private money: what is the difference?
Hard money comes from a lender that makes short-term real estate loans as a business, with published terms of roughly 10 to 14 percent and two to four points; private money comes from an individual or small group lending their own funds, often at 8 to 12 percent with fewer points but less predictability. Hard money is repeatable and fast; private money is cheaper when you have the relationship.
Side by side
| Hard money lender | Private money lender | |
|---|---|---|
| Who lends | A company or fund that lends full time | An individual, family office, or small group |
| Typical rate | 10 to 14 percent | 8 to 12 percent |
| Points | 2 to 4 | 0 to 2 |
| Terms | Published guidelines, consistent from deal to deal | Negotiated each time |
| Speed | 5 to 10 days | Anywhere from 2 days to never, depending on the person |
| Paperwork | Standard note, deed of trust, servicing | Often lighter; sometimes too light |
| Reliability | High; capital is committed | Depends on the lender's other commitments |
| Regulation | Licensed in many states | Often exempt below a certain number of loans per year |
Ranges vary widely on the private side because every lender is different.
When private money is better
You have a relationship with someone who has capital and trusts your track record. Terms are usually cheaper, there is no origination department, and the lender can move on a phone call. Many experienced investors fund most of their deals this way.
When hard money is better
You need certainty of funding, a lender who will do the third and tenth deal the same way as the first, draw administration on rehab, and a clear paper trail. Hard money lenders also have capacity: they can fund several deals at once where an individual's cash is finite.
The risks of private money
- The lender changes their mind or runs out of funds before closing.
- Undocumented terms lead to disputes at payoff.
- Missing lender protections, such as a recorded deed of trust, insurance requirements, and a proper note, create problems for both sides and for your refinance later.
- Usury laws: some states cap interest on loans from unlicensed lenders.
If you borrow privately, use a real note and deed of trust drafted by a real estate attorney, record it, and pay through a servicer.
Combining the two
A common structure is hard money for the first mortgage and private money for part of the down payment or the rehab, where the hard money lender allows it. Ask first; many do not allow secondary financing.
How CommFi handles it
Our lending desk prices the deal first and funds direct when it fits. When a hard money specialist is the right match, the desk searches a database of 7,000+ lenders and the ones that fit compete for it. Zero upfront fees, and every loan is documented and serviced properly.
Related reading
Related questions
- Is private money cheaper than hard money?
- Often, by two to four points in rate and one to three points in fees, because there is no origination business behind it. Terms vary lender by lender.
- Is hard money more reliable than private money?
- Usually. Hard money lenders have committed capital and a repeatable process. A private lender's availability depends on their other commitments.
- Do private money loans need to be documented?
- Yes. Use a note and deed of trust drafted by an attorney and record it, or the loan will cause problems at refinance.
- Can I combine private money with a hard money loan?
- Sometimes, for part of the down payment or rehab, if the hard money lender permits secondary financing. Ask before closing.
- Do private lenders need a license?
- It depends on the state and the number of loans per year. Some states cap interest on loans from unlicensed lenders.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.