The short answer
A hard money lender is a company that makes short-term, asset-based loans on investment property, usually interest-only with points paid at closing. A private money lender is typically an individual — a friend, family member or local investor — lending their own capital on terms you negotiate directly. Institutional investor lenders, often reached through a broker, offer more standardized programs such as fix & flip, bridge and DSCR loans. All three can work; the right choice comes down to total cost, speed, how much paperwork you can handle, and how clearly the terms are written.
Key takeaways
- Hard money lenders are businesses that lend on the property’s value, usually short-term and interest-only.
- Private money lenders are usually individuals lending their own funds, with terms negotiated deal by deal.
- Institutional investor lenders offer standardized fix & flip, bridge and DSCR programs; brokers shop several of them.
- Compare total cost: points, interest over a realistic hold, lender fees, extension fees and prepayment terms.
- Get every term in writing — especially draws, extensions and default provisions — before you sign.
Three kinds of lenders investors use
Search for a “hard money lender” or a “private lender for real estate investors” and you’ll get every kind of capital mixed together. They aren’t the same thing. Here’s how the three main sources of short-term investor capital differ:
| Hard money lender | Private money lender | Institutional investor lender | |
|---|---|---|---|
| Who it is | A lending business, often local or regional | An individual or small group lending their own money | A larger lender with defined loan programs |
| Terms | Set by the lender, some flexibility | Negotiated directly with you | Standardized program guidelines |
| Qualifies on | Mostly the property and the deal | Relationship, trust and the deal | The deal, credit, liquidity and experience |
| Typical cost | Higher rate plus points | Varies widely | Often more competitive for qualified borrowers |
| Paperwork | Moderate | Can be minimal (risky) | More documentation, more consistent |
| Long-term options | Rarely | Rarely | Often — including DSCR refinances |
What is a hard money lender?
A hard money lender makes asset-based loans: the property’s value — often its after-repair value — is the main thing securing and justifying the loan. Hard money is typically used for flips, bridge situations and properties that can’t qualify for conventional financing in their current condition. Loans are short-term, usually interest-only, and secured by a first lien on the property.
The appeal is speed and flexibility. The trade-off is cost: hard money generally carries a higher rate than long-term debt plus origination points (a percentage of the loan paid at closing). Guidelines also vary a lot from one hard money lender to the next, so two quotes can look similar and cost very different amounts.
What is a private money lender?
A private money lender is usually a person, not an institution: a family member, a business contact, or a local investor with capital to deploy. Rates, points, term and repayment are whatever the two of you agree to. That flexibility is powerful — and it’s also the risk.
- Pros: flexible terms, relationship-based approval, can move very quickly on a deal the lender likes.
- Cons: limited capital, inconsistent availability, and real potential to strain a relationship if the project runs long.
- Must-haves: a written promissory note, a recorded mortgage or deed of trust, title insurance, and clear default and extension terms. Have an attorney paper the deal — handshake loans are where investors get hurt.
What short-term investor capital really costs
The advertised rate is only one line in the cost. When you compare lenders, line up all of these for your realistic hold period, not the best-case one:
- Points: origination charged at closing, sometimes also at payoff (“exit points”).
- Interest: usually interest-only, sometimes charged on the full loan amount even before rehab funds are drawn (“Dutch interest”) rather than only on funds disbursed.
- Lender fees: underwriting, processing, document prep, wire and draw-inspection fees.
- Extension fees: what it costs if the project runs past the maturity date.
- Prepayment terms: minimum-interest periods or prepayment penalties if you pay off early.
- Third-party costs: appraisal, title, insurance and recording, which apply to every lender.
What to watch for before you sign
- 1Junk fees. A long list of vague charges (“admin,” “processing,” “document review”) that weren’t on the term sheet.
- 2Upfront fees before underwriting. Legitimate lenders may collect for an appraisal, but large “commitment” or “application” fees before any review are a warning sign.
- 3Unclear draw process. Ask how quickly draws are funded after inspection and who orders the inspection. Slow draws stall projects and add interest.
- 4Expensive or discretionary extensions. Know the extension cost and conditions now, while you still have leverage.
- 5Hidden prepayment terms. Minimum-interest clauses can erase the benefit of finishing early.
- 6Aggressive default provisions. Default interest rates and late fees that kick in quickly deserve a careful read.
- 7Terms that change at closing. If the final documents don’t match the term sheet, stop and ask why.
Where a broker like EHM fits
EHM Strategies isn’t a hard money lender or a private lender — we’re a mortgage broker that works with a network of institutional lending partners. Instead of taking whatever one lender offers, we match your deal to the program that fits it: a fix & flip loan with rehab draws held in escrow, a bridge loan for a short hold, or a DSCR loan for the long-term refinance. One relationship can cover the whole life of the deal, from purchase to permanent financing.
If you already have a private lender you like, that’s fine — the same diligence applies. Want a second set of eyes on a term sheet or a deal? Request a quote. All loans are subject to credit approval and program guidelines.
Frequently asked questions
What is the difference between hard money and private money?
Hard money comes from a lending business that makes short-term, asset-based loans on investment property. Private money usually comes from an individual lending their own capital on terms negotiated directly with the borrower. Both are typically short-term and secured by the property.
Are hard money loans expensive?
Hard money loans generally cost more than long-term financing: a higher interest rate, origination points at closing, and lender fees. Because they are short-term and interest-only, total cost depends heavily on how long you hold the loan.
How fast can a hard money or investor loan close?
Short-term investor loans close much faster than conventional mortgages because underwriting focuses on the property and the deal. EHM Strategies’ fix and flip program can close in as few as 7 to 14 days when documents and the appraisal are ready, subject to credit approval.
Do hard money lenders check credit?
Most do. Hard money and institutional investor lenders focus on the property, but they typically pull the guarantor’s credit and review liquidity and experience. Lenders that advertise no credit check often make up for it with lower leverage or higher cost.
Is a mortgage broker better than going direct to a hard money lender?
A broker can compare programs from several lenders and match the loan to the deal, while going direct gives you one lender’s terms. Either way, compare total cost, draw process, extension terms and prepayment provisions before you sign.
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This article is for general educational purposes and is not a commitment to lend, legal advice or tax advice. Loan programs, terms and eligibility vary by lender and are subject to credit approval and program guidelines. Not all programs are available in all states. See our disclosures.