What’s the Difference between a Hard Money Loan and a Private Money Loan?

You’re buying a property and your bank financing is turned down. Your real estate agent might  recommend you find a hard money loan to close the transaction. Searching online, you notice a lot of information for hard money loans, and additional information about something called private money loans — which seem like the same thing. And you’d be mostly right. But while they’re very similar, there are some differences between the two terms.

Hard Money Loan Versus Private Money Loan

A hard money loan uses the "hard" asset of the actual real estate, whereas a private money loan analyzes both the property and borrower financial strength. Hard money loans are often used for short-term financing while private money loans may have longer terms. Both types of loans are typically offered by private lenders, but hard money loans tend to have higher interest rates and fees due to the higher risk involved.

People often use the words interchangeably. The private money industry uses “private money loans” whereas the public — from borrowers, real estate agents, and mortgage brokers — mostly say “hard money loans.” We’re essentially talking about the same thing – a short-term loan, secured against an investment property, issued by private individual(s) or a mortgage lender specializing in 12-24-month bridge loans.

If you’re buying a property and need to use a hard money loan or private money loan to complete the acquisition, it doesn’t really matter if your lender considers their product hard money or private money.

It’s mostly semantics.

Your loan will most likely be a 12-24-month bridge loan carrying a higher interest rate and closing costs than the bank financing you applied for originally. But, you’ll be able to close out the purchase quickly, then work on securing long-term bank financing once your finances, or the condition of the property, meets the requirements.