A private money loan is a short-term, asset-based loan secured by real estate and funded by a private lender, not a bank. Unlike a bank, a private lender qualifies the deal based on the property’s value and your exit, not your W-2 or DTI. For California real estate investors, that distinction matters every time a distressed property hits the market, an auction requires same-day funding, or a bank declines a deal that pencils out on paper.
Private money loans are also called hard money loans, private mortgage financing, or simply private lending. The terms describe the same instrument: short-term capital secured by real estate, priced on the asset rather than the borrower.
Key Takeaways
- Private money loans are asset-based: the property and the exit strategy qualify the deal, not the borrower’s income.
- Rates run 9-15% with 2-4 origination points; terms are 6-24 months with a balloon payment at maturity.
- Private lenders fund six transaction types: fix-and-flip, BRRRR, commercial, new construction, bridge, and second mortgages.
- Credit affects rate tier and leverage, not approval. Most lenders accept 600 or above.
- Closings run 7-14 days versus 30-60 days for a conventional mortgage.
- “Private money” and “hard money” describe the same instrument in most of the market.
- No documented exit strategy means no loan.
How Does a Private Money Loan Work?
A private money loan is underwritten on the asset, not the borrower’s financial profile. The lender orders a property valuation, reviews the exit strategy, and structures the loan against the collateral. Because every decision turns on property value rather than tax returns, private lenders fund deals in days.
Three mechanics decide how the loan is built: how much it lends against the property, how it’s repaid, and how it’s paid off at the end.
Loan Amount: LTV and ARV
LTV (loan-to-value) measures the loan as a percentage of current market value. Most private lenders cap LTV at 60-75%. A $500,000 property at 70% LTV supports a $350,000 loan.
ARV (after-repair value) is used on fix-and-flip deals. The lender can fund up to 70-75% of ARV, and valuations come from a licensed appraisal or a broker price opinion (BPO). A BPO is faster; an appraisal carries more weight on larger commercial deals. Some private lenders, including Fidelity, also use verbal appraisals to compress the valuation step further, which is a large part of how a 7-day close is possible at all.
On rehab loans, the construction portion is released in draws rather than at closing. The lender funds each draw after inspecting completed work, typically within 24-72 hours of request. Budget your own cash to carry the first phase of work before the first draw reimburses it.
Repayment: Interest-Only and Balloon
Most private money loans are interest-only with a balloon at maturity. On a $400,000 loan at 11%, the monthly payment is $3,667. The full $400,000 is due at loan end. This structure keeps cash flow low during a rehab or lease-up period.
If the balloon comes due before the exit lands, whether the sale falls through or the refinance is delayed, the borrower must negotiate an extension with the lender or risk default. Extensions are common and usually cost points rather than a rate increase, but they are discretionary. Ask about extension terms at origination, not at month eleven.
Exit Strategy
An exit strategy is the documented plan for repaying the loan at maturity. There are three standard exits:
- Sale of the property. Most common on fix-and-flip.
- Refinance into long-term financing. Most common on BRRRR, where the permanent lender will test the property’s debt service coverage ratio before funding.
- Sale of a separate asset. Used when the subject property is a long-term hold.
No documented exit means no loan. Those three mechanics also determine what the loan costs, because a private lender prices the deal on the structure rather than on the borrower.
What Does a Private Money Loan Cost?
Private money loan rates in 2026 run 9-12% for first-position loans and 12-15% for second-position loans, compared to roughly 6-7% for conventional investment mortgages. The second position is priced higher because it carries more risk for the lender.
Six factors price a specific loan:
- LTV ratio. Lower leverage earns a lower rate.
- Property type and condition. Stabilized assets price below heavy-rehab deals.
- Borrower experience. Completed deals move you into better tiers.
- Loan position. First position prices below second.
- Market and state. Pricing varies by jurisdiction and foreclosure timeline.
- Term length. Shorter terms typically carry lower rates.
Points run 2-4% of the loan amount at closing. On a $300,000 loan with 3 points, that is $9,000 upfront. Compare offers on total cost over your expected hold rather than on the headline rate, because a lower rate with more points often costs more across a 12-month term.
Down payments typically run 10-30%. True 100% financing is rare and reserved for experienced borrowers with strong ARV margins.
At those rates, the deal has to justify the cost. That narrows private money to a specific set of transactions.
What Are Private Money Loans Used For?
Private money loans fund six primary transaction types: fix-and-flip, BRRRR rentals, commercial real estate, new construction, bridge financing, and second mortgages.
Fix-and-flip is the most common use. The lender funds purchase and rehab in a single loan with draw-based releases. Private lenders close in 7-14 days versus 45-60 for a bank. Speed wins contracts, which is why hard money is built for distressed and value-add acquisitions.
BRRRR (Buy, Rehab, Rent, Refinance, Repeat) uses private money to acquire and renovate a distressed property, then refinances into a long-term loan after stabilization. Banks won’t lend on non-conforming properties at acquisition.
Commercial real estate loans run across mixed-use, multifamily, retail, light industrial, and hospitality assets. The typical use case is value-add acquisition: the property doesn’t yet cash-flow enough for permanent financing. On commercial deals, understanding recourse vs non-recourse before signing matters.
New construction loans fund land and construction costs in draws, capped at 65-70% of ARV. Banks require pre-sales; private lenders generally don’t. Subdivision and multi-lot projects are financed the same way, with draws tied to horizontal improvements and vertical construction phases.
Bridge loans span a gap between two financial events, most often an acquisition that must close before an existing property sells. The same structure works in reverse: refinancing into hard money when a maturing bank loan can’t be extended.
Second mortgages are junior liens used to pull equity from a stabilized asset, typically at 12-15% for 12 months or less.
Private money loans cannot be used for a primary residence. Dodd-Frank ability-to-repay rules apply to owner-occupied loans, and private lenders structure their programs to stay outside that market.
Whichever transaction type applies, the qualification process is the same, and it looks nothing like a bank’s.
What Are the Requirements for a Private Money Loan?
Private lenders qualify the asset and the exit. Credit score affects rate and leverage, not approval. A 740 FICO might get 12% at 75% LTV. A 620 FICO on the same deal might get 14% at 65% LTV. Some lenders have no minimum.
Borrowers with weak credit can still qualify, with four adjustments:
- A higher rate, typically +2-3%
- Lower leverage, usually 60-65% LTV instead of 70-75%
- A larger down payment to cover the leverage gap
- A strong, documented exit
Verify state licensing before engaging. California requires private lenders to hold a California Finance Lenders license or to operate under a real estate broker license. Fidelity Mortgage Lenders operates as a California Department of Real Estate Real Estate Broker, License No. 00388229, under Corp NMLS ID #1726526.
Documentation is lean. Six items cover most files:
- Purchase contract
- Scope of work and rehab budget
- Proof of funds for down payment and reserves
- LLC or entity documents
- Insurance binder naming the lender
- Government ID
A complete package takes 24-48 hours to assemble, compared to weeks for a bank mortgage. Missing the scope of work is the most common cause of delay on fix-and-flip files.
Experience affects pricing. First-timers pay 1-2% more and bring 5-10% more cash to closing. Investors with 10 or more completed deals qualify for preferred rate tiers.
One point of confusion comes up in nearly every first conversation, so it’s worth settling before comparing lenders.
Is Private Money the Same as Hard Money?
In practice, yes. Most of the market uses “private money loan” and “hard money loan” to mean the same thing: a short-term, asset-based real estate loan from a non-bank lender.
Some practitioners draw a distinction. Under that convention, private money comes from a professional lending company with published programs and consistent terms, while hard money comes from an individual investor or small group negotiating deal by deal. The distinction isn’t standardized, and lenders use the labels inconsistently.
What matters is the structure behind the label, not the label itself. A borrower comparing two quotes should ask four questions:
- Who controls the capital, and is it committed?
- Is the lender licensed in the state where the property sits?
- How fast can they actually fund, in writing?
- Do their terms hold from deal to deal, or are they negotiated each time?
For a fuller treatment of where this financing sits in the current market, see why hard money matters in today’s market. Private money and hard money are the same instrument. The instruments that genuinely differ are the bank and agency products investors compare it against.
How Is a Private Money Loan Different From Other Financing?
A private money loan qualifies on the asset and the exit and funds in 7-14 days, whereas a conventional mortgage qualifies on the borrower’s documented income and funds in 30-60 days. The table below shows where each option sits across the four attributes that separate them.
| Attribute | Private Money | Traditional Mortgage | Bridge (Bank) | HELOC |
| Approval basis | Asset + exit | Full borrower profile | Borrower + asset | Primary residence equity |
| Typical rate | 9-15% | 6-7% | 6-10% | 8-10% |
| Typical term | 6-24 months | 15-30 years | 6-18 months | 10-year draw |
| Speed to close | 7-14 days | 30-60 days | 3-6 weeks | 2-4 weeks |
Private money wins on speed and access for non-W-2 borrowers. Conventional wins on cost and term for investors who can document income and afford the timeline. For a deal-by-deal breakdown of that trade-off, private money vs bank loans walks through when each one is the right call.
That trade shows up clearly when the advantages are set against what you give up.
What Are the Pros and Cons of a Private Money Loan?
A private money loan trades cost for speed and access. The table below sets the advantages against the trade-offs.
| Advantages | Disadvantages |
| Closes in 7-14 days | Rates of 9-15% versus 6-7% conventional |
| Approval based on the asset, no income documentation | 2-4 origination points due at closing |
| Structure negotiable deal by deal | Balloon payment due at 6-24 months |
| Single loan covers purchase and rehab | 10-30% down payment required |
| No prepayment penalty on most loans | Faster foreclosure timeline on default |
| Open to self-employed and non-W-2 borrowers | No Dodd-Frank consumer protections |
The rate gap is the cost that surprises most first-time borrowers. On a $500,000 loan held 12 months, the difference between 11% private money and 6.5% conventional is roughly $25,000 in additional interest. That gap is worth paying when speed wins the deal and worth avoiding when it doesn’t.
Is a Private Money Loan Right for You?
It depends on three things: how fast you need to close, whether the property qualifies for conventional financing in its current condition, and whether you have a documented exit. Private money wins when speed and property condition rule out a bank. It loses when you have time, documented income, and a property a bank will already lend on.
Use private money when:
- Speed wins the contract
- The property is distressed or non-conforming at acquisition
- You lack W-2 income or can’t document it conventionally
- You need a short-term bridge between two events
- The seller requires a fast close
Avoid private money when:
- The hold is long-term with no refinance plan
- The property will be a primary residence
- You have strong W-2 income and 45 days to close
- There is no documented exit
- Margins are thin enough that points and interest erase the profit
- You are a first-timer with no contingency reserve
If your deal falls into the second list, one of three alternatives will usually cost less or fit better.
What Are the Alternatives to a Private Money Loan?
Not every deal requires private money. Depending on the property, your profile, and the timeline, one of these may be the better instrument.
| Alternative | Typical rate | Beats private money when |
| DSCR loan | 7-9% | The property cash-flows at acquisition, you want a 30-year fixed rate, and there is no balloon |
| Conventional investment mortgage | 6-7% | You have documented W-2 income, strong credit, and 30-60 days to close on a move-in-ready property |
| Bank bridge loan | 6-10% | You have a strong financial profile, the property is in good condition, and a 3-6 week close is acceptable |
Frequently Asked Questions
How do private money lenders work?
A private money lender evaluates the property and your exit strategy rather than your income and debt-to-income ratio. The lender orders a valuation, confirms the property supports the loan at its LTV or ARV cap, reviews your documented plan for repaying at maturity, and funds against the collateral. Because no income underwriting is involved, the file moves in days rather than weeks. Most private lenders deploy their own capital or a mortgage fund, which is why approval authority sits in-house.
What credit score do you need for a private money loan?
Most private lenders accept 600 or above, and some have no minimum at all. Credit affects your rate tier and how much leverage you get, not whether you’re approved. A borrower with weaker credit typically pays 2-3% more and receives 60-65% LTV instead of 70-75%, which means a larger down payment. A strong property and a documented exit can offset weak credit; neither can offset a deal that doesn’t pencil.
What are private money loan interest rates?
Private money rates run 9-12% for first-position loans and 12-15% for second-position loans, with 2-4 origination points due at closing. Six factors set the specific rate: LTV, property type and condition, borrower experience, loan position, market and state, and term length. Compare offers on total cost over your expected hold rather than on the headline rate, because a lower rate with more points often costs more across a 12-month term.
How fast can a private money loan close?
Most private money loans close in 7-14 days, compared to 30-60 days for a conventional mortgage and 45-60 for a bank construction or bridge loan. The timeline depends on how fast the valuation comes back and how complete your file is at submission. A borrower with the purchase contract, scope of work, proof of funds, entity documents, and insurance binder ready can often close at the fast end of that range.
Can you use a private money loan for a primary residence?
No. Private money loans are business-purpose loans secured by investment property. Owner-occupied residential lending triggers Dodd-Frank ability-to-repay requirements and consumer disclosure obligations that private lenders structure their programs to avoid. If the property will be your primary residence, a conventional or non-QM residential mortgage is the correct instrument.
What documents do you need for a private money loan?
Six items cover most files: the purchase contract, a scope of work with a rehab budget, proof of funds for your down payment and reserves, LLC or entity documents, an insurance binder naming the lender, and government ID. A complete package takes 24-48 hours to assemble compared with weeks for a bank mortgage. Missing the scope of work is the most common cause of delay on fix-and-flip files.
Get Your Deal Funded
The difference between a funded deal and a missed one often comes down to how fast your capital moves. California’s investment market doesn’t wait on bank timelines, and a property in distress won’t qualify for conventional financing until the work is done. Getting the loan structure right before you’re under contract pressure is what separates investors who close from investors who watch deals go to someone else.
Fidelity Mortgage Lenders has been funding deals banks decline since 1971, with over fifty years of operations across California. Call (800) 752-9533 or apply now to get your deal reviewed.
Disclaimer
This article is for general informational purposes only and is not legal, tax, financial, or investment advice. It is not an offer to lend, a commitment to lend, or a solicitation for any specific loan product.
Rates, points, loan-to-value limits, terms, and timelines described here are illustrative ranges based on general market conditions at the time of writing. They are not quotes. Actual terms depend on the property, the borrower, the transaction, current market conditions, and underwriting, and are subject to change without notice. No loan terms are established until a written commitment is issued.
Consult your own attorney, accountant, and licensed mortgage professional regarding your specific transaction.
Disclosure
Fidelity Mortgage Lenders, Inc. originates non-consumer, business purpose loans secured by commercial or residential property. These loans are not available for owner-occupied primary residences.
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