What is a Private Money Loan?

A private money loan is a type of short-term loan that is funded by private individuals (trust deed investors), family offices, or private mortgage debt funds rather than traditional financial institutions like mortgage bankers, commercial banks, or credit unions. These loans are often used for short-term financing and are secured by the property being purchased.

Private money loans, also known as hard money loans, are typically used in real estate transactions where the borrower needs quick access to cash and doesn't qualify for a traditional loan, due to the property's poor condition or current vacancy — or the borrower's current short-term financial situation. For more reasons why people use these loans, read our blog post, “Why Do People Use Hard Money Loans? 20 Examples.” 

While hard money loans are considered asset-based loans secured by a hard asset (real estate), private money loans are both hard money loans (hard asset) plus financial details required by the lender for approval. 

Private money loans require the borrower to have good credit (620+ FICO scores) so they can qualify for conventional financing to pay off the loan. Borrowers must also document liquidity with bank statements, leases for rental properties, and rehab budgets for fix- and-flip loans. Many private money lenders require full interior and exterior appraisals of the property. 

I use private money and hard money interchangeably. Most real estate agents, mortgage bankers, and borrowers refer to these short-term loans as hard money. Most people in private lending, from mortgage originators like myself, mortgage funds, attorneys specializing in this niche, and secondary market investors (these loans can be sold to Wall Street hedge funds), call them private money loans. 

In the end, when you hear private money loan or hard money loan, know that they're referencing the same type of mortgage — a short-term bridge loan for real estate investors to acquire fixer-uppers or vacant properties that don’t qualify for bank financing. Private money loans just require more financial and property documentation than a hard money loan.