What Is a Private Hard Money Loan?
A private hard money loan is a type of hard money loan funded by an individual private lender or a group of investors, rather than a company or institutional lender. These are especially common in real estate investing circles where speed and flexibility are critical.
Key Features of Private Hard Money Loans:
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Personal relationship: You may personally know the lender, or connect through a network.
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More flexibility: Terms can often be customized more than with a formal lender.
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Less regulation: Private lenders may not be subject to the same strict lending rules.
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Risk-based pricing: The more risk the lender perceives, the higher the interest rate or fees.
When Are They Used?
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Real estate flips
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Land or construction loans
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Borrowers with poor credit or no verifiable income
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Fast-closing property deals
Pros:
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Faster and simpler approval
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Custom loan terms
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Potential for negotiation with a familiar lender
Cons:
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Very high interest and fees
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Risk of personal fallout if the lender is a friend or family member
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Still secured by property, so default can lead to foreclosure